TheAustralianPopulationResearchInstitute,ResearchReport,November2019

Australia’s‘jobsandgrowth’strategy:pathwaytoalowproductivityeconomy

BobBirrellandDavidMcCloskey

TheAustralianPopulationResearchInstitute<tapri.org.au>POBox12500MiddleCamberwellVictoriaAustralia3124

Reportauthors

BobBirrell(mobile0413021126)istheHeadoftheAustralianPopulationResearchInstitute(TAPRI),anindependent,non-profitresearchorganisation.

DavidMcCloskey(mobile0419899768)isaMonashUniversityResearchAssociate.

TheywouldliketothankDonandTriciaEdgar,KatharineBettsandMichaelMoynihanfortheirhelpinpreparingthisreport.

ArticlespublishedbytheAustralianPopulationResearchInstitutemayberepublishedprovidedtheinstituteanditswritersareappropriatelycredited,andalinkismadetoourwebsite<tapri.org.au>.

Anyarticlesreproducedcannotbeeditedoranymaterialsoldseparately.

Australia’s‘jobsandgrowth’strategy:pathwaytoalowproductivityeconomy

BobBirrellandDavidMcCloskey

Tableofcontents

ExecutiveSummary........................................................................................................................i

Introduction..................................................................................................................................1

TheProductivitycrisis.......................................................................................................................2

Labourproductivity.......................................................................................................................3

Table1.LabourProductivity(wholeeconomy)since1974-75......................................................4

ThesourcesofAustralia’srealGDPgrowth...................................................................................5

Figure1:Contributiontolabourinputgrowth,2017-18..............................................................6

Whoknowsandwhocares?..........................................................................................................7

TheexpendituresideofrealGDPgrowth.........................................................................................7

IshighNOManintegralpartofthejobsandgrowthagenda?........................................................9

IndustrysubsidyinreturnforaccesstotheAustralianlabourmarket...........................................10

Theoverseasstudentindustry........................................................................................................10

Thehorticulturalindustry...............................................................................................................10

Regionalurbancentres...................................................................................................................11

ImplicationsofhightemporarymigrationfortheAustralianlabourmarket................................11

Table2:Mainoccupationsoftemporarymigrants.....................................................................13

Thestatewearein......................................................................................................................14

TheReserveBankadmitsitsmistake...........................................................................................14

OutcomesintheU.SandAustraliacompared................................................................................15

Table3ComparisonofUSandAustraliaJune2017andJune2018...........................................16

Whywon’tCoalitiongovernmentadvisorsacknowledgetheroleofNOM?..................................16

The‘wayout’:furthereconomicreform......................................................................................18

TheprospectsforknowledgeintensiveindustriesinAustralia.....................................................19

Theknowledgeintensiveindustryrecord.......................................................................................19

Australianeconomicpolicyandthedemiseofmanufacturing.......................................................19

Theconsequencesforknowledgeintensiveindustries...................................................................22

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Table4Changeinmanufacturingjobsbyindustry,2006to2011and2011to2016................22

Australia’straderecordinknowledgeintensiveindustries............................................................23

TheIsraelexample..........................................................................................................................24

AnAustralianexception?................................................................................................................25

LessonsfromtheAustralianexperience.........................................................................................25

Thelong-termImplicationsforlabourproductivity.....................................................................26

Productivitygainsinindustriesservingthedomesticmarket.........................................................27

Itisgoingtogetworse:Australia’slowproductivitytrap............................................................28

Conclusion..................................................................................................................................29

Notes..........................................................................................................................................31

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Australia’s‘jobsandgrowth’strategy;pathwaytoalowproductivityeconomy

BobBirrellandDavidMcCloskey

ExecutiveSummaryAttemptstokickstartgrowthintheAustralianeconomyhavesofarmetwithlacklustreresults.Wagegrowthisweakandstimulusmeasuressuchastherecenttaxcuthavebarelyhadanimpact.Ourmainconcernistoexplorewhymonetarypolicyhassofarnotworked.ThecentralhypothesisisthatanimportantfactorhasbeentherapidgrowthinAustralia’slaboursupply.Aswewillsee,thisisacorecomponentoftheCoalitiongovernment’s‘jobsandgrowth’strategy.

WealsoexplorethebiggerpictureofwhatisdrivingAustralia’sso-calledmiracleeconomyandits28yearsofunbrokenGDPgrowth.ThroughoutthispaperGDPreferstorealgrowth(adjustedforinflation).Itisunbrokenpartlybecausethetotalproductionofgoodsandservicesisbeingaugmentedbyhighpopulationgrowth.ThismeansthatwhileGDPcontinuestogrow,itdoesnotmeanthatpercapitaGDPgrowsatthesamerate.

WearguethatAustraliaisfallingintoalowproductivitytrappreciselybecauseofdecisionsmadeinrecentyearswhichhavenarrowedoureconomicbaseandmadeusevermorereliantoncommoditymarketstopayourway.

AccordingtoarecentHarvardKennedySchool’sCentreforInternationalDevelopmentpaperAustraliaisrich,dumbandgettingdumber.InourstudywelookattheproductivityoftheAustralianeconomyandidentifysomeofthereasonswhyourapproachtoeconomicmanagementhascontributedtothisresult.Indeed,wearenowinasituationwherewehavebetthefarm(andthehouse)oneverincreasingpopulationgrowthandfreetradeagreementswhichimplythatcommoditieswillremainthegrowthenginesofAustralia’sexportsuccess.

Policymakersarefacingaseriousdilemma.HowisGDPgrowthtoberestoredtothethreetofourpercentannuallevelofafewyearsago?Ifthisistooccur,itwillhavetoinvolveanincreaseinconsumerexpenditureandbusinessinvestmentinacontextwherewagegrowthisnowrelativelylow.

TheheavyworkoverthelastfewyearshasbeentakenonbytheReserveBankofAustralia(RBA).Ithaspursuedanaggressivemonetarypolicyinvolvingsuccessivereductionsinofficialinterestrates.

Thisissupposedtoworkbyputtingextrafundsintoconsumers’pocketsbecausethosewithdebtswillhavetopayoutlessininterestpayments.

MuchtothefrustrationoftheRBA,thispolicyhasfailed.Why?

WhenaddressingtheHouseofRepresentativesEconomicsCommitteeinAugust2019,thegovernor,PhillipLowe,madearevealingstatement.

HeadmittedthatmonetarypolicywasnotworkingandthatthiswasbecauseAustralia’slaboursupplywasexpandingfasterthantheRBAhadprojected.This,heacknowledged,

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meantthatthatemployershavenothadtocompeteharderforworkersandthushadnothadtoincreasewages.

Lowesaidthatthecauseofthisstronglaboursupplywasanupwardmovementinlabourmarketparticipation.HeadmittedthattheRBAhadnotpredictedthis.Lowesaidthatthebankhadexpectedlowerinterestratestogenerateincreasedconsumerspending.Thiswouldinturnhaveledtoincreasedcompetitionforlabourwhichwouldliftwages.Butthehigherrateoflabour-marketparticipationhadunderminedthisexpectation.

Lowe’sstatementisconsistentwithourhypothesisabouttheimportanceofgrowthinthesupplyoflabour.However,Lowehadnothingtosayaboutthemainsourceoflabourforcegrowth,thatishighratesofnetoverseasmigrationtoAustralia(NOM).WethinkhedidnotmentionthisbecausetodosowouldhavechallengedtheCoalitiongovernment’s(andtheRBA’s)commitmenttothe‘jobsandgrowth’strategy.

‘Jobsandgrowth’isashorthandstatementoftheCoalitiongovernment’seconomicstrategy.ItreferstotheCoalition’scommitmenttopromotinghighlevelsofjobgrowthandcontinuedeconomicgrowth.ThestrategyinpartreferstotheCoalition’sclaimstobeingagoodeconomicmanager,viabudgetthrift,pro-businesstaxationandregulatorypolicyandawillingnesstopromotecontinuedeconomicreform.

Thestrategyalsoincludesafirmpolicycommitmenttomaintainingahighlevelofpopulationgrowth,mainlyderivingfromNOM.Asweshow,thiscommitmentiscentraltothe‘jobsandgrowth’strategybutnotopenlystatedforpublicconsumption.

TheCoalitionanditsadvisors(includingTreasuryandtheRBA)knowthatwhilethispopulationpolicyprevailsitwillputafloorunderAustralia’saggregateeconomicgrowthperformance–intheprocesshelpingtosustainthenarrativeofAustralia’s28yearsofunbrokeneconomicgrowth.

TothisendtheCoalitionhasputinplacemigrationpolicysettingswhichensureNOMremainsaroundthepresentlevelof250,000ayearoverthenexttwoyears.TheNOMcomponentwilldeliverpopulationgrowthofaround1.0percentpopulationgrowthayear,andwillremainthemainsourceofAustralia’scurrentoverallannualpopulationgrowthof1.6percent.

Therecentreductioninthepermanentprogramfrom190,000to160,000ayeariswindowdressing.Thiscutisbeingmorethanmadeupbymeasuresthatallowtemporarymigrationtocontinuetoexpand.ThestockofmigrantsholdingtemporaryentryvisasinAustraliahasexpandedfrom1.8millioninJune2015to2.2millioninJune2019.SuchistheeffectofthisexpansionthatAustralia’scurrentmigrationprogramisbestdescribedasalow-skill,ratherthanahigh-skillprogram.

Thispolicyincludesawideningrangeofsubsidiestovariousindustries,includingtheinternationaleducationindustryandthehorticulturalindustry.Italsoincludesmigrantvisaswhichpreventtherecipientsfromworkingandlivinginmetropolitanareas.IneachcasetemporarymigrantsareallowedextratimeinAustralia’slabourmarketinreturnforenrollingin,workinginorlocatingintheseindustriesorlocations.Thispracticeisadefactosubsidytoregionalareas.

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Thestructureofthisreportisasfollows.WefirstexaminetheimplicationsofpopulationgrowthforAustralia’seconomicgrowthperformance,startingontheproductionsideoftheeconomy.

By2017-18and2018-19,almostallofAustralia’sincreaseinoutputofgoodsandserviceswasattributabletoextrahoursworked.Thecontributionoflabourproductivity,definedasadvancesinoutputperhourworkedwasnegligible(Table1).

Thechiefsourceofextrahoursworkedwaspopulationgrowth,mainlyderivingfromNOM.Howevertherestreflectedrecentincreasesinlabourmarketparticipation(andthushoursworked)amongstolderpersonsandwomen(Figure1).

OntheexpendituresideoftheeconomymostofAustralia’sgrowthinGDPwasattributabletoextraconsumers,plusadditionalpublicexpenditureandexportrevenuegeneratedbyAustralia’scommodityindustries.

Atpresent,Australia’seconomyislimpingalongcourtesyofthepopulationcomponentofthe‘jobsandgrowth’strategy.

WhileLowedidsaythatanincreasedsupplyoflabourhaddepressedwageshedidnotrefertorecentinternationalexperience,especiallyintheU.S.Inthatcountry(unlikeAustralia)growthinthedemandforlabourisexceedingthatoflaboursupply.Theresult,asshowninTable3,isthatwagegrowthandinflationintheU.S.nowexceedthatofAustralia,andthelevelofunemploymentiswellbelowAustralia’s.

TheRBAsimplyignorestheobviouslabourmarketconsequencesofhighNOMforlabourmarketcompetition,especiallythatflowingfromtheinfluxoflow-skillmigrantsontemporaryvisas.Theseconsequencesareevidentacrossawiderangeoftheindustriesthatrelyonsuchlabour.

AsTable2shows,migrantsontemporaryvisas,includingNewZealanders,areconcentratedinindustrieswhichuselow-skillworkers.Heretheycreateferociouscompetitionfordomesticworkerswantingjobsintheseindustries.Thisiswhytherearealmostdailyreportsofemployerspayingworkersbelowawardrates.Thereisalsostrongcompetitionforemploymentinmanymajorprofessionallabourmarkets.

Whilethislaboursupplyabundancepersistsemployerdonothavetoraisewageratesnordotheyneedtoinvestinlaboursavingequipment.Ifmoreoutputisrequiredtheycansimplyrunexistingequipmentharderand/ortakeonmoreworkersatexistingwagerates.

Fromthisperspectivethe‘jobsandgrowth’strategyispartoftheproblemratherthanthesolution.

TheAustralianeconomyisatastalemate.WithNOMacrucialpartofthe‘jobsandgrowth’strategyneithertheCoalitionnoritsadvisorscancontemplateanyreductioninimmigrationinordertomakethelabourmarketmorecompetitive.

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Thelikelihoodisthattheeconomywilllimpalong,derivingmostofitsgrowthfromextrahoursworkedandproppedupbyadditionalgovernmentexpenditure,moreinfrastructureinvestmentandaboosttothehousingindustryvialowinterestrates.

Allofthesemeasurewilldeliverlowgainsinlabourproductivity.TheymeanthatAustraliawillcontinuetomovedownalowproductivitypathway.

Thereis,however,oneremainingoption.ItisanoptiononwhichtheCoalition,theLaboroppositionandmosteconomicpolicyadvisorsareasoneon.Thisistheinitiationofanotherboutofneoliberaleconomicreform.Theproponentsbelievethatafurther,moredetermined,forayintothisterritorywilldelivernewknowledgeintensive,internationallycompetitiveandhighproductivityindustries.Isthislikely?

Alladvancedeconomiesareexperiencingaslow-downinlabourproductivity.Butalmostall(otherthanAustralia)possessskillhubswhichfeaturesuchhighlabourproductivityindustries.

WearguethatanewboutofeconomicreformwillnotproducesuchskillhubsinAustralia.ThisisbecauseAustraliahasonlyatinybaseofexistingmanufacturingindustriesonwhichnew,knowledgeintensiveindustriescouldbebuiltand/orwhichmightbecomebranchesofmultinationalsupplychains.

ThissituationreflectsdeliberateAustraliangovernmentpolicyduringtheresourcesconstructionboomerabetween2003and2012.Thepolicywastoachievefundamentalstructuraladjustmenttowardsinternationallycompetitiveindustries,whichatthetimewerealmostexclusivelycommoditybasedindustries.

Thiswasachieved,asthedrasticcontractionofemploymentinmanufacturingindustriesshowninTable4attests.

OneresultisthemassiveandgrowingdeficitinAustralia’sinternationaltradeaccountsforknowledgeintensivemanufacturedproducts(orElaboratelyTransformedManufacturesastheyaretermedbytheDepartmentofForeignAffairsandTrade).

Thisdeficitreached$184.9billionin2017-18bywhichtimeitalmostexactlymatchedbyasurplusintheinternationaltradeincommoditiesof$186.7billioninthesameyear.

ToovercomethishandicaptheAustraliangovernmentwouldhavetoembarkontargetedindustrypolicysuchashasbeenpursuedbygovernmentsinIsrael,SingaporeandNorway.Thishasnotbeencontemplated,partlyforideologicalreasonsandpartlybecausethefreetradeagreementsAustraliahassigned(particularlywithChina)precludeanyactiveindustrypolicy.

Theconclusionisthatwhilethe‘jobsandgrowth’strategyprevailsAustraliawillbestuckonalowproductivitypathway,dependentforitseconomicgrowthoncontinuedincreasesinpopulation.

Thestrategyisfoolish.Allitachievesistheadditionofaneverlarger,relativelyunproductive,domesticburdenontoAustralia’snarrowcommodity-basedinternationaleconomy.

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IntroductionAustraliahasaproblem.DuringtheHawke/KeatingeratheAustralianeconomywasopeneduptoglobalcompetition.

Intheseveraldecadessincethisopeningupallseemedtobegoingwell.Australianenterprisesdidfindanicheintheglobalmarketplacebutthiswasprimarilyincommodityindustries.

Despitethisnarrowbase,theoveralleconomyperformedstronglythroughto2012.ThiswasmainlyattributabletotheenormousboosttoGDPderivingfrommineralandenergyprojectconstructionaftertheminingboombeganin2003.

By2012thisgrowthhadearnedAustraliathe‘miracleeconomy’tag.

Whencommoditypricesfellprecipitouslythrough2011and2012sodidmineralconstructioninvestment,withtheconsequencethatGDPgrowthalsoslumped.

ItwaspanicstationsbythetimetheCoalitiongovernmentwonthe2013election.Howcouldtheeconomyberevived?

By2016theCoalitionthoughtithadfoundaway.AcombinationofRBAdecisionstolowerinterestrates,somerevivalincommoditypricesandthebeginningsofahousingboomallservedtoboosteconomicactivity.

Muchtothesurpriseofmanyobservers,includingourselves,since2016therehasbeenaremarkablesurgeinoveralljobgrowthinAustralia.BetweenAugust2016andAugust2019therewasanetincreaseinemploymentof954,700.Thisgrowthrepresentsamassivenearthreepercentannualgrowthinemployment,manytimesthelevelintheUKandtheUS.

ThisjobgrowthwasaccompaniedbyaparallelgrowthintheAustralianlabourforce,fuelledinpartbystrongNetOverseasMigration(NOM)butalsobyasharpincreaseinlabourforceparticipation.

Since2016,theCoalitiongovernmenthasclaimedthatthisemploymentachievementistheproductofits‘jobsandgrowth’strategy.

WefirstfindthislabelbeingusedbyMalcolmTurnbullduringthe2016Federalelectioncampaign.Hestatedthat:‘Oureconomicplanismoregrowthandjobs,fuelledbyinnovation,productivity,competition,openmarkets’.1

Since2016,‘jobsandgrowth’hasbeentheCoalition’seconomicpolicymantra.ThecurrentPrimeMinister,ScottMorrison,hasmadeithiscallingcard.

ItreferstotheCoalition’straditionalstanceofmanagingdebt,prudentexpenditure,lowertaxand,asindicatedinTurnbull’sstatement,toitscommitmenttofurthereconomicreform.

But,inaddition,thoughnotclearlystatedforpublicconsumption,itincludescontinuedhighNOM.

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‘Jobsandgrowth’seemedtobegoingwellinto2018.Themassivejobgrowththrough2018helpedtheCoalitionwintheMay2019federalelection.Itservedastangibleevidenceforitsclaimtobeasuperioreconomicmanager.

ButsomeeconomicindicatorsweresuggestingthattheAustralianeconomywasnotingoodshape.Despitethehugegrowthinemployment,growthinwagelevelshadfallentoaroundtwopercentperannumby2017,wellbehindthelevelofearlieryears.

FortheReserveBankofAustralia(RBA)theseoutcomeswerebothpuzzlinganddisturbing.Since2016theRBAhasbeenimplementingalowinterestratepolicy,intheexpectationthatthiswouldleadtohigherwageratesandtohigherinflation.

Thisishasnothappened.Inflationby2018-19waswellbelowtheRBA’stargetof2to3percent,partlybecauseofthelowgrowthinwagesjustreferredto.

Thisoutcomehaspromptedfurtherreductionsintheofficialcashrateto0.75percentasofOctober2019.Ithasalsopresentedaseriouspuzzle.Howcouldwageratesbefallingwhennetjobgrowthhasbeennear300,000ayearsince2016?.

Oneotherdisturbingeconomicoutcomeisthatlabourproductivityhasdeclinedsharplyinthepastcoupleofyears.Thistooisamajorfocusofthispaper.Weexplorethelinksbetween‘jobsandgrowth’,therecentdeclineinproductivityandthelikelyfutureimpact.

TheProductivitycrisisThedeclineinlabourproductivityhaspromptedCoalitiongovernmentalarm.ThisconcernwasgivenfullvoiceinaspeechbytheTreasurer,JoshFrydenberg,on26August2019.ThespeechwasentitledMakingourownluck–Australia’sproductivitychallenge.2

Laborproductivityreferstoannualgrowth(ordecline)inrealoutputperhourworked.Itissometimesrestrictedtooutputinmarket-basedindustries.IntheTreasurer’sspeechthereferencewastotheentireeconomy,includinggovernmentprovidedservices,notablyhealthandeducation.

TheTreasureracknowledgedthatlabourproductivityhadfalleninthepastfiveyearstoanaveragegrowthof1.1percentayear,from‘ourlongrunaverageof1.5percentayear’.3Hemighthavementioned,butdidnot,thatfor2017-18,accordingtotheProductivityCommission(PC)itgrewbyjust0.2percentagepoints4(Table1),andaccordingtotheABS,for2018-19itfelltominus0.1percentagepoints.5

Thesedevelopments,theTreasurerargued,threatenedAustralians’economicwellbeing.Thereasonwasthat,intheabsenceofarecoveryinlabourproductivity,employerswouldhavelittlecapacitytoincreasewagelevels.Heacknowledgedthattheproductivityslow-downwasamajorcontributortotherecentdeclineinthesewagelevelsandtothelowerrateofgrowthinGDP.

TheTreasurerexhortedbusinessestoincreasetheirlevelofinvestmentincapitalperworker.Heacknowledgedthatthishadcollapsedinrecentyearsandwasthemainreasonfortherecentdropinlabourproductivity.

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WeanalysetheoutcomesidentifiedbytheTreasurerbyfirstdescribingthesourcesofAustralia’sgrowthinGDP.WeaskhowmuchofAustralia’sgrowthinproductionhasbeenduetoextraworkersandhowmuchofAustralia’sgrowthinexpenditurehasbeenduetoextraconsumers.

WethenexploretheimplicationsofthefindingthatextraproducersandextraconsumersaretheprimedriversofAustralia’seconomy.ThisrelationshipisneveropenlyacknowledgedbytheCoalitionoritseconomicadvisors,includingtheRBA.NorisitadmittedthatitisexplicitgovernmentpolicytosustainNOMattheveryhighlevelsneededtoachievetheseeconomicgrowthoutcomes.

Therearetwostoriestotell.Oneconcernsthecurrentsituation.ItfocussesontheroleoflaboursupplyinexplainingAustralia’srecentpoorrecordinwagesandinflation.(TheRBAwantsinflationtobehigherbecauseitisconsideredtobeamarkerofahealthyeconomy–includingagreatercapacityfordebtholderstopayofftheirdebt).

ThesecondconcernstheCoalition’scommitmenttofurthereconomicreform.This,asnoted,isaclearlystatedcomponentofits‘jobsandgrowth’,strategy.Thepublicisbeingreassuredthat,whateverthepresentrockyeconomicsituation,allwillbewell,iftheGovernmentisgiventhespacetoinitiatearenewedboutofeconomicreform.Suchreform,theGovernmentasserts,willgenerateamorehighlyproductiveeconomybasedoninternationallycompetitiveknowledgeintensiveindustries.Ouranalysisinthesecondpartofthisstudyindicatesthatthisoutcomeisunlikely.

Webeginbyexploringtherecentrecordoflabourproductivityandofficialexplanationsofthefactorsdrivingthisrecord.IflabourproductivityisnolongerdrivingAustralia’seconomicgrowth,whatis?

LabourproductivityIntheearlyyearsfollowingtheHawke/Keatingreforms,Australia’slabourproductivityrecordwasgood,especiallyduringthelate1990sandearly2000s.Bythistime,thePC,theRBA,theTreasuryandmosteconomistswereconfidentthattheireconomicreformshadlaunchedAustraliaonahighlabourproductivitypathway.

WhentheTreasurypublishedits2015IntergenerationalReport,itforecastthatlabourproductivitywouldcontinuetogrowstronglyoverthenext40yearsatanaverageannualrateof1.5percentagepoints,muchthesameastheratethathadprevailedintheprevious40years.6

Ithasnotturnedoutthisway.

InitsMay2019ProductivityBulletin,thePCindicatesthattheannualgrowthinlabourproductivityforthewholeeconomyaveraged1.2percentagepointsperyearbetween2011and2017-18.However,itfellto0.9percentagepointsfortheyears2015-16and2016-17,thento0.2percentagepointsfortheyear2017-18.7

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Table1.LabourProductivity(wholeeconomy)since1974-75

Long-term

growth rate

Last complete

cycle

Period since

the last

cycle

Latest years

1974-75 to 2017-18

2003-04 to

2011-12

2011-12 to

2017-18 2015-16 2016-17 2017-18

Economy Labour productivity 1.7 1.1 1.2 0.9 0.9 0.2

Source: Productivity Commission 2019, PC Productivity Bulletin, May.

Inlate2016thePCwasaskedbytheCoalitiongovernmenttoinquireintothereasonsforAustralia’slowrateofproductivitygainssincetheearly2000s.IntheDiscussionPaperthePCissuedasapreludetoitsinquiry,itmadethefollowingstartlingadmission:

Since2004multi-factorproductivityhasstalled,hereandaroundthedevelopedworld.Thisisalongenoughperiodtosuggestsomethingisseriouslyawryintheeconomicfundamentalsandconsequentgenerationofnationalwealthandindividualopportunity.8

First,let’sclarifythemeaningofmulti-factorproductivity.Economistsconceptualiselabourproductivitygainsascomingformtwosources:abettereducatedworkforce(whoonaccountoftheireducationuseexistingcapitalequipmentmoreefficiently),andgainsfromextracapitalequipmentperworker(usuallyreferredtoascapitaldeepening).Thesegainsaredistinguishedfromthosethatstemfrommulti-factorproductivity.

Multi-factorproductivityreferstogainsfrombettercorporateorganisationofthefactorsofproduction,suchasthefamousJapanese‘justintime’efficienciesinmanagingthetransferofinventoriesofinputstoproductionlines.

Butthemajorsourceofimprovedmulti-factorproductivity(accordingtotheTreasuryandthePC)isextraoutputperworkerresultingnotjustfromextracapitalequipmentbutfromtheincorporationofmoreadvancedtechnologyinnewplantandequipment.BHPandRioTinto’sinvestmentindriverlesstrucksattheirPilbaraironoreminesisanexample.

AccordingtothePC,themajorreasonfortherecentstallingoflabourproductivityisAustralia’spoorrecordofinvestmentinnewplantandtechnology.9

ThatiswhythePCandtheTreasury(asreflectedintheTreasurer’sAugust262019speech)placesomuchimportanceoncajolingbusinessintoincreasinginvestmentinplantandequipment.Thisisbecauseitisthesourceofbothcapitaldeepeningandtheincorporationofmoreadvancedtechnologyintotheworkplace.

ThereisnodoubtthattherecentdeclineincapitalinvestmentperworkergoesalongwaytoexplainingAustralia’srecentpoorrecordinlabourproductivity.

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Butwhyareemployersreluctanttoinvestinnewcapitalperworker?Afterall,ICTinnovationhaspresentedmultipleopportunitiesforproductivitygains.

TheTreasureraccusedbusinessesofgivinggreaterprioritytoreturningcapitaltoshareholdersthantoinvestmentintheworkplace.

Analternativeexplanation,arguedinthispaper,isthatAustralia’s‘jobsandgrowth’strategyispartoftheproblem.Whyinvestinlaboursavingequipmentifthereisanampleever-growingsupplyoflabour?

WeelaborateonthishypothesislaterafterfirstexaminingthesourcesofAustralia’srecentrecordofGDPgrowth.Ifit’snotlabourproductivity,whatisit?

ThesourcesofAustralia’srealGDPgrowthGDPcanbemeasuredfromtwoperspectives.Oneistheoutputorproductionsideoftheeconomythatweareabouttoconsider.Theotheristheexpenditureside(consumptionandinvestment),exploredlater.Bydefinition,GDPestimatesderivedfromtheoutputandexpendituresidesmustbethesame.

Analysisoftheproductionsidebeginswiththestatisticians’estimatesofthetotalvalueofallgoodsandservicesproducedinAustralia.

IntheTreasury’sreportingformat,GDPgrowth(measuredfromtheproductionside)istheproductofthethreePs,thatis,population,participationandlabourproductivity.

ThePCreferstothecontributionofthefirsttwoPs(populationandparticipation)aslabourinputs.Iflabourinputsaregrowingstronglythen,eveniflabourproductivityislow,GDPwillcontinuetogrow.Populationreferstothecivilianpopulationaged15plus.Participationinthiscontextreferstothenumberofhours,onaverage,thateachmemberofthecivilianpopulationisemployed.

ThefollowingChart,drawnfromthePCs2019ProductivityReportshowsthesourcesoflabourinputsfortheyear2017-18.Theycontributed2.6percentagepointstoGDPgrowthin2017-18.Theydwarfedthecontributionmadebylabourproductivity,whichwasestimatedtobejust0.2percentagepointsin2017-18.

Theresult(accordingtothePC)wasanoverallincreaseinrealGDPin2017-18of2.8percentagepoints.(TheABShassincerevisedthegrowthinrealGDPfor2017-18to2.9percentagepoints).

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Figure1:Contributiontolabourinputgrowth,2017-18Percentagepoints

Source:Figure1ProductivityCommission2019,PCProductivityBulletin,May.

Populationgrowthwasthemaincontributortolabourinputs(at1.6percentagepoints).

Thereweretwosourcesofgrowthinthecivilianpopulationaged15+.ThefirstandmostimportantwasthecontributionofNOM.Wecan’tprovideapreciseestimateofthiscontributionbecausetheABSdoesnotpublishsuchestimates.Howeveritislikelytohavebeenaboutonepercent,giventhatin2017-18NOMcomprisedaroundonepercentagepointoftheoverallincreaseinAustralia’spopulationof1.6percent.Therestofthe1.6percentgrowthinthecivilianpopulationaged15+wouldhavecomefromgrowthintheresidentpopulationaged15plus.

Theothercontributorto‘labourinputs’(theremainingonepercentagepoint)cameprimarilyfromincreasedlabourmarketparticipation(whichincludesthoseemployedandunemployed).Thishassoaredinrecentyears.Ithadbeenfairlystableataroundthe64.8percentlevel(originalfigures).Itthenincreasedto65.1percentinJune2017,65.7percentinJune2018and66.1percentJune2019.10Mostoftheseparticipationgainscamefromwomenandolderpersons.

Inaddition,asthePC’sfigureindicates,accountmustbetakenoftheshareofthoseparticipatingintheworkforcewhowereemployedandthehourstheyworked(sincelabourinputreferstototalhoursworked).Thereweresmallgainsin2017-18fromadropintherateofunemployment(of0.2percentagepoints).Thesegainswereoffsetsomewhatbyafallduring2017-18inthenumberofhoursworkedperpersonemployed,of0.4percentagepoints.

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ThebottomlineisthatlabourinputswerethedominantsourceofGDPgrowthin2017-18,sincelabourproductivityonlyincreasedby0.2percentagepointsinthatyear.

ThisstartlingconclusionisrarelyacknowledgedbyAustralia’seconomicpolicyadvisorsorbyCoalitiongovernmentleaders.Afterall,Australiaissupposedtobea‘miracleeconomy’–aproductofgoodeconomicmanagement.Thisishardlyconsistentwithaneconomydependentongrowthinhoursworked.

Whoknowsandwhocares?Someinternationalobservers,includingrecently,abranchoftheUSFederalReserveBank,haveunkindlydrawnattentiontothesituation.PerhapsthebranchwasfedupwithAustraliangovernmentposturingabout28yearsofcontinuouseconomicgrowth.11

However,thereisagrowingawarenessamongsteconomiccommentatorsoftheimportanceofhoursworkedindrivingAustralianrealGDPgrowth.AlanKohlerisprominentamongthese.

Herearesometypicalremarks(fromJune2019).Heassertsthatcurrently,realGDPgrowthofaroundtwopercentisequivalenttopopulationgrowth.Hisconcernisthat‘debtandimmigrationhavebeenusedtocreatetheillusionofgrowthandprosperity,inturnbecausethat’seasierthangrowingproductivity’.12HegoesoverboardinanOctober15statementthatpopulationgrowthinAustralia‘isentirelyresponsibleforthemeaslygrowthwe’vegot.’13

Inreality,populationgrowthisanimportantcontributor.Butsotooistheshareofthecivilianpopulationactuallyworking.

WhatabouttheAustraliangovernment?HowconsciousistheCoalitiongovernmentandtheTreasuryoftheimportanceoflabourinputs(particularlyNOM)torealGDP?IsgrowthinNOManintegralpartofits‘jobsandgrowth’strategyagenda?

BeforeexploringthisquestionweneedtoexaminetheothersideofthecompositionofGDP,thatis,theconsumptionandinvestmentexpenditureside

TheexpendituresideofrealGDPgrowthNotmanyobserversunderstandthetechnicalitiesofassessingtheroleoflabourproductivityandlabourinputindeterminingtheproductionsideofGDPaccounting.

Theydounderstand,veryclearly,thecontributionthatpopulationgrowthmakestotheexpendituresideoftheeconomy.

Thenationalaccountsmakethislinkcrystalclear.Thelatest,fortheyear2018-19showthatgrowthinrealhouseholdconsumptionfellto1.9percent.Mostofthiswasattributabletoextraconsumers.14

Thestrongestgrowthontheexpendituresidecamefromgovernmentconsumptionexpenditureandfromforeigners.Astothelatter,theirimpetuscamefrompurchasesofminerals,whosevalueincreasedbecauseofatemporarysurgeinthepriceofironoreduringtheJuneQuarter2019.

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Fromthisperspective,theimportanceofpopulationforgrowthinGDPisobvious.Moreconsumers(otherthingsbeingequal)meansmoreconsumptionexpenditureandmoreinvestment(inthelongterm)toprovidefortheirhousingandthecitybuildingneededtocopewiththeirextranumbers.

MostofSydneyandMelbourne’scurrentpopulationgrowthofover100,000ayearisattributabletoNOM.

WehavedocumentedthecontributionofNOMtothegrowthofhouseholdnumbersviahouseholdprojectionsforSydneyandMelbourne.Usingdemographicassumptions(forNOMandforbirthanddeathrates)closetothosecurrentlyprevailing,wefoundthat64percentofhouseholdgrowthinSydneyoverthedecadeto2022willbeduetoNOMand54percentinMelbourne.15

ThehousingandpropertyindustriesandtheirspokespersonsarewellawareofthislinkandnevertireofadvocatinghighNOMpoliciesorofexpressingalarmatanyhintofcuts.

AsimilarattitudeisdeeplyembeddedinthethinkingoftheGovernment’sadvisors,notjustwithintheTreasury,butalsowithintheRBA.

TheseniorranksoftheRBA,includingtheGovernorPhillipLowe,areallstrongadvocatesforhighNOM.TheBankisvitallyinterestedinkeepingGDPgrowthgoing.

PhillipLowehasremindedaudiencesovertheyearsofhowimportantpopulationgrowthisindrivingconsumptionandinvestmentexpenditureinAustralia.

Hereisthelatest,deliveredonSept24,2019.Atthistimeheindicatedthatinterestratesmayhavetobecutagain,becausetaxcutsandpreviousinterestratescutswerestillnotarrestingtheeconomy’sslide.Thiswas,hesaid,notwithstandingthedynamismthatAustralia’shighrateofpopulationgrowthbringstotheeconomywhich,hedeclared,is‘adynamismthatisnoteasilymatchedincountrieswithdecliningpopulations.’16

ThisisaviewthatismusictotheearsofAustralia’speakbusinessassociation,theBusinessCouncilofAustralia.Itschiefeconomist,AdamBoyton,likeLowe,thinksthatcontinuedhighpopulationgrowthmayhelpinavoidingthetrapofzeroornegativeinterestratessuchasoccurredinJapan.HeassertsthatAustralia’sskilledmigrationaddstogrossdomesticproductgrowthperperson,aidsintheadoptionofnewtechnologyandmakesAustraliamoreproductive.17

Itwouldappeartofollowthat,fortheCoalitiongovernmentanditseconomicpolicyadvisors,populationgrowthisanimportantpartoftheireconomicpolicystrategy.NOMseemstobeespeciallyimportant(notjustbecauseitiscurrentlythemajorcontributortothepopulationcomponentofGDPgrowth)butalsobecause,byadjustingtheimmigrationpolicylevers,itcanbemovedupordown.Bycontrast,residentpopulationgrowthcannot(exceptintheverylongtermaswithbirthincentives).

ButisthisacknowledgedbytheCoalitiongovernmentandisNOMdeliberatelymanagedtoservethisfunction?

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IshighNOManintegralpartofthejobsandgrowthagenda?Asindicated,theCoalitiongovernmentprefersnottobroadcastthedegreetowhichAustralia’seconomicgrowthdependsonlabourinputsandparticularlyonNOM.

NeverthelessrelianceonNOMisimprinteddeeplyintotheCoalition’seconomicplanning.Itsannualbudgetincorporatespopulation(andNOM)estimatesintoitsforecastsforrealGDPgrowthandtaxationrevenue.Thelatterispredicated(amongotherthings)onforecastsofthenumberoftaxpayersandrevenuefromvisafees.

TheimportanceofthiscontributionwasopenlystatedintheCoalition’sMarch2019PopulationPlan.ThePlanstatesthatmigrantscontributemoretoGovernmentrevenuethantoexpenditurecosts.(Thisisnotsurprisinggiventhatthesecostsdon’tincludeStategovernmentexpenditureonprovidinghealthandotherservicesformigrants.)ThePlanstatesthat:‘The2017-18permanentmigrantintakeisestimatedtoimprovetheCommonwealthbudgetby$4.2billionacrossthemigrants’lifetimes’.18

ThePrimeMinister,ScottMorrison(whenservingasTreasurer)publiclyvoicedhisoppositiontoanycuttothemigrationprogramontheserevenuegrounds.HealsoarguedagainstproposalsfromhisCabinetcolleaguesformigrationcutsduringtheTurnbullera.19

TheTreasury,ofcourse,isfullyawareoftheimportanceofsustaininghighNOMifitsGDPforecastsaretobeattained.Inthelatest2019-20budgetitprojectedthatNOMwouldincreasefrom259,600in2018to271,000in2019andbyasimilaramountin2010.20

Youmaywonderabouttheseobservations,giventhatsinceMalcolmTurnbulllosthisjobasPrimeMinistertoScottMorrison,theCoalitiongovernmenthasreducedthepermanententrymigrationprogramfrom190,000in2017-18to160,000for2019-20.

ThisdropreflectsMorrison’sneedtoappeasetheconcernsofPeterDuttonandhissupporters,whomadeacutinimmigrationoneofthegroundsforDutton’schallengetoTurnbull.

Butthisconcessiondoesnotindicateanyreducedcommitmenttomaintainingpopulationgrowthasamajordriverofthegovernment’s‘jobsandgrowth’strategy.

Thereductioninthepermanententryprogramisjustwindowdressing.MostofthegrowthinNOMisattributabletoanincreasingnumberoftemporaryentryarrivals.ThestockofthesetemporariesinAustraliaincreasedfrom1,764,982inJune2015to2,181,440inJune2019.Muchofthiswasattributabletooverseasstudents,thestockofwhomgrewfrom374,554inJune2015to553,139inJune2019.21

OverseasstudentshaveconstitutedthelargestsourceofgrowthofNOMinAustralia.Theycomprised44percentofNOMin2017-18.22MigrantsontemporaryvisasnowdominatethemigrantflowenteringtheAustralianlabourmarket.AsaconsequenceAustralia’smigrationprogramisnowprimarilylowskilled,ratherthanhighskilled.

ThisoutcomeispartlyaconsequenceoftheCoalitiongovernment’spermissivepoliciesontherulesallowingtemporary-entrymigrantstostayoninAustralia.Itis,forexample,allowing

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themtocirculatearoundinAustralia,movingfromonetemporaryvisatoanother.Forexample,theseincludepermissionforformeroverseasstudentstostayonasvisitors.

Thesemeasures(andothersdescribedshortly)arenotframedascontributionstoNOMandtotheattainmentofthe‘JobsandGrowth’agenda.Butthereisnodoubtthattheycontributetothisoutcome(bycontributingtothehugeandincreasingstockoftemporarymigrantsinAustralia).

IndustrysubsidyinreturnforaccesstotheAustralianlabourmarketInsomecases,themeasuresreflectadeliberatepolicytopromotecertainindustries,byusingthebaitofadditionalaccesstotheAustralianlabourmarketasanattractiontotheirrecruitmentoftemporarymigrants.

Theyhavebeen,ineffect,willingtosubsidiseindustrieswhichbenefitfromthisinflux.Thesubsidyconsistsofenhancingthescaleorprofitsoftheindustriesinquestion.Itis,however,grantedattheexpenseofthoseresidentswhoendurethepoorerwagesandconditionsresultingfromjobcompetitionfromthemigrantswhogainthislabourmarketaccess.Herearesomeexamples.

TheoverseasstudentindustryAswehavedocumentedelsewhere,sincetheearly2010sprospectivehighereducationoverseasstudentshavebeenallowedtotakeupahighereducationvisawithminimalchecksonwhethertheyhavethefundstoprovidefortheirlivingexpensesinAustralia.AsfarasthoserecruitedfromtherelativelylowincomecountriesoftheIndiansubcontinentareconcerned,thisvirtuallyguaranteesthattheywilllookforjobopportunitiesassoonastheybegintheirstudies.

Inaddition,sinceNovember2011anewprivilegehasbeengrantedtoalloverseasstudentswhocompleteanyhighereducationdegree.TheyarenowallowedtostayoninAustralia(ona485visa)foratleastanothertwoyearswithfullworkrights.23

Thenumberof485visasissuedannuallyincreasedfrom22,895in2014-15to63,994in2018-19.ByJune2019therewere91,776holdersof485visaholdersinAustralia,upfrom37,717inJune2016.24

TheseconcessionsappeartobethemaindriveroftherecentrapidincreasesinhighereducationenrolmentsfromtheIndiansub-continent.Theyarethemainsourceoftheoverallrecentgrowthinoverseasstudentenrolments.

Thisoutcomeamountstoasubsidytotheinternationaleducationindustry,thecostsofwhicharebornebythedomesticworkerswhohavetocompetewiththesestudentsorex-studentsinthelabourmarket.

ThehorticulturalindustryTheCoalitiongovernmenthasopenedupothertemporaryentryprogramsaswell,includingtheWorkingHolidayMaker(WHM)program.Ithasexpandedthenumberofcountrieseligibleforthisprogramandtheannualquotasavailableforapplicantsfromsomecountries.Ithas

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particularlyfavouredthehorticulturalindustry.Mostrecently,ithasallowedWHM’spreparedtoworkinagriculturetostayoninAustraliaforanextrayear(withfullworkrights).

Thismeasureishelpingtopropupagriculturalinterests(mainlyhorticulture)byprovidingatiedlabourforcethat,inreturnforextraaccesstotheAustralianlabourmarket,willacceptthepayandconditionstheindustryoffers.Thesearebelowthelevelmostresidentworkersarewillingtoaccept.Againthisamountstoasubsidytotheindustry,thecostsofwhichwillbebornebythedomesticworkerswhocompetewiththeseextraWHMswhentheytakeuptheirextrayearintheAustralianlabourmarket.

RegionalurbancentresSomeregionalurbancentres(likeAdelaide)wantmorepeoplebecausetheirrateofpopulation(andeconomic)growthisfallingbehindthatoftheeasternmetropolises.Thisisaconsequenceofanetoutflowofexistingresidentstotheeastandalimitedinflowofoverseasmigrants.

TheCoalitiongovernmenthasrespondedtotheregionalpleaby(startinginNovember2019)devotingasharplyincreasedshareofthepermanentskilledprogramtoregionalvisaswhichpreventthosereceivingthemfromlivingandworkinginSydney,MelbourneandBrisbane.Thesevisasrequireseveralyearslivingandworkinginregionalareasonaprovisionalvisawhichmayallowtherecipienttoapplyforapermanententryvisaattheendthisperiod.

Again,thisamountstoasubsidytotheregionalareasinquestion.Theygainthebenefits(ofdemandforhousingandthelike).Themigrantsareineffectproppingupregionalareaswhere(fromthepointofviewofresidents)theattractionsareregardedaslessthanthoseofferedinotherAustralianlocations.

ThereseemstobenoendtothecurrentCoalitiongovernment’swillingnesstousethisstrategy.InlateOctober2019theCoalitionannouncedthatitwillallowhighereducationoverseasstudentswhocompletetheirstudiesinregionalareas(allplacesotherthanSydney,MelbourneandBrisbane)tostayonviaa485visaforthreeyearsratherthantwo.25Thisconstitutesaremarkablesubsidytotheregionallylocatedhighereducationindustry.ItwillattractoverseasstudentswhosemainpriorityistimespentintheAustralianlabourmarkettoenrolintheseregionaluniversities.

ImplicationsofhightemporarymigrationfortheAustralianlabourmarketWeandothershavelongarguedthattemporarymigrantshaveworsenedthewagesandconditionsresidentworkersfacewhenworkinginlowandsemi-skilledindustries(ifindeedtheycanfindsuchwork).26

Domesticworkersfaceferociouscompetitionfromtemporarymigrantswhooftenhavenochoicebuttoacceptwhateverjobstheycanfindonwhatevertermsandconditionsemployersarepreparedtooffer.Youmightthink,inthecaseofoverseasstudentswhohavecompletedcourseshere,thattheywillbeabletogainprofessionalemploymentrelevanttotheirstudies.Howeverthisisnotoftenthecase.Therearelimitedopportunitiesforsuch

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workforformerstudentsonatemporaryvisaandwhodonothaveworkexperienceintheirfieldofstudy.Asaresulttheymostlyendupcompetingforlowskilljobs.

Wemaketheaboveassertionswithsomeconfidencebecause,forthefirsttime,theABShasmadeinformationontheoccupationsheldbymigrantsinAustraliaontemporaryvisasaccessible.ThiscanbeaccessedfromtheunpublishedmicrodatacompiledbytheABSfromthe2016census.ThisjoinscensusreturndatawithmigrationdataonthevisastatusofpersonsinAustraliaatthetimeofthe2016census.TheABSclaimsthatithasthisinformationonthegreatmajorityofthetemporarymigrantsinAustraliaatthetime.

ThefollowingTableliststhemainoccupationsoftemporarymigrantsinAustraliaatthetimeofthe2016Census.Alloftheseoccupations,foreachvisacategoryareinunskilledorsemi-skilledjobs.ThisincludestheNewZealandersinAustraliaonthetemporaryvisaavailabletoallNewZealandcitizens.ThisallowsallofthesecitizenstotraveltoandstayandworkinAustraliaindefinitelyshouldtheychoosetodoso,butonlyallowslimitedaccesstoapermanentresidencevisa.

Table2showsthatatthetimeofCensusin2016thesetemporarymigrantsconstitutedasignificantshareofallthoseemployedintheoccupationslisted.Forexample,thisamountedto19percentofallthoseemployedascleanersandlaundryworkersand18percentofhospitalityworkers.

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Table2:MainoccupationsoftemporarymigrantsOccupation Bridging

visaSpecialCategory(NewZealandcitizen)

TemporaryWork(Skilled)

WorkingHolidayMaker

Student OtherTemp-oraryvisa

TotalTemporaryvisaholders

Totalinoccupation2016

%ofjobsinoccupationheldbytemporarymigrants

CleanersandLaundryWorkers

3,859 11,058 2,147 3,293 26,351 2,186 48,898 253,082 19.3%

HospitalityWorkers 2,441 8,226 1,899 8,558 22,430 1,796 45,343 247,971 18.3%SalesAssistantsandSalespersons

2,578 17,820 2,074 2,193 16,195 2,869 43,715 667,682 6.5%

FoodTradesWorkers 2,970 6,490 10,246 2,892 13,089 1,309 36,999 163,448 22.6%FoodPreparationAssistants

1,479 4,445 1,013 2,900 16,081 998 26,922 150,150 17.9%

PersonalCarersandAssistants

1,653 8,928 1,494 361 9,359 1,470 23,269 244,767 9.5%

ConstructionandMiningLabourers

1,058 13,415 589 1,587 1,837 173 18,652 136,555 13.7%

Storepersons 593 12,182 243 521 2,027 524 16,082 108,209 14.9%PackersandProductAssemblers

1,167 4,925 758 4,537 2,682 456 14,514 73,984 19.6%

TruckDrivers 540 10,616 351 230 1,216 201 13,158 148,566 8.9%Business&SystemsAnalysts,&Programmers

316 2,871 7,611 220 923 1,177 13,117 113,531 11.6%

Farm,ForestryandGardenWorkers

873 3,388 567 6,439 1,129 364 12,767 93,308 13.7%

Construction,DistributionandProductionManagers

568 8,234 2,753 236 528 275 12,582 220,011 5.7%

MobilePlantOperators 407 10,863 216 275 415 162 12,339 105,783 11.7%Allotheroccupations 9,113 69,757 25,805 8,386 22,631 8,805 144,482 — —Notapplicable 61,379 259,113 53,481 21,140 271,857 24,265 691,236 — —

Total 90,991 452,331 111,247 63,766 408,750 47,029 1,174,073 — —Source:ABSAustralianCensusandTemporaryEntrants2016Database–ABSTableBuilder.Note:Notapplicableincludesthoseunemployedornotintheworkforce

Asnoted,since2016,thenumberoftemporaryvisaholdershasescalated(thoughnottheNewZealandersbecauseofimprovementsintheNewZealandlabourmarket).Sohavethecompetitivepressuresonthejobmarketsaffected.

Thisisobviousinthecaseofthelowerskilledlabourmarketswheretemporarymigrantshavetoseekemployment.Inrecentyearstherehavebeenalmostdailyrevelationsofwageunderpaymentsintheseoccupations.

However,thelabourmarketisalsoslackformostprofessionalworkers.Therearehardlyanyprofessionaloccupationswherethereisanationalsupplyshortage.Thisislessthecaseforprofessionalswithjobreadyskillsandexperience.Butforsomerecentdomesticgraduatesandmostrecentlyarrivedprofessionalmigrants,jobsarescarce.Onlyaminorityfromnon-English-speaking-countriesfindprofessionalormanageriallevelworkinthefirstfewyearsafterarrivalinAustralia.27

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ThestateweareinBy2018-19the‘jobsandgrowth’strategyappearedtohaverunoutofsteam.RealGDPhadshrunktolevelsnotseensincetheGFC.Year-on-yearrealGDPgrewbyjust1.9percentin2018-19.Allofthisgrowthwasattributabletolabourinputs,sincelabourproductivityfor2018-19wasestimatedbytheABSforthewholeeconomytohavefallenby0.1percentagepoints.Therateofgrowthofhouseholdconsumptioncontinuedtodecline.Itrosebyjust1.9percentin2018-19,thelowestannualgrowthratesince2012-13.28Aswehaveseen,almostallofthisconsumptioncontributiontorealGDPgrowthderivesfromgrowthinthenumberofconsumers.

ThishaslefttheCoalitiongovernmentanditsadvisorswithaseriousproblem.TheheavyworkoverthelastfewyearshasbeenlefttotheRBA.Ithastakenupthechallengeviaitsaggressivereductionsinofficialinterestrates.

Thisactionhasnotworked,leavingtheRBAwithanembarrassingpuzzleastowhyithasnotworked.

TheReserveBankadmitsitsmistakeYouwillfindaclearstatementofthetheorybehindtheRBA’sinterestratestrategyinitsleader’spresentationtotheHouseofRepresentativesStandingCommitteeonEconomics,on9August2019.29

Monetarypolicyworks,accordingtoPhilipLowe,byfirstlyhelpingtoholddowntheexchangerate,thusgivingAustralianproducersabetterchanceofcopingwithforeigncompetition.ItalsogivesadirectboosttoconsumptionbecauseitmeansAustraliandebtholdersdon’thavetopayasmuchininterestpaymentsasbefore.Thisamount,accordingtotheRBA,greatlyexceedsthecontractionininterestratepaymentstoAustralianbondholdersanddepositorsflowingfromtheRBA’sinterestratecuts.30

TheRBAhasbeenexpectingthatthesubsequentincreaseinconsumptionwouldpromptaboostinwagesasemployershadtotakeonadditionalworkerstomeettheextrademand.

FollowingquestioningfrommembersoftheHouseCommittee,theRBAadmittedthat,despitethesefavourablecircumstances,itsmonetarypolicyhadnotworked,because:‘thatincreaseddemandforlabourhasbeenmetwithmorelaboursupply’.

Thelaboursupplyturnedouttobemuchmore‘flexible’thantheRBAhadanticipated.WhileLowesaysthisisgoodnews,‘it’sprovinghardertogenerateatighterlabourmarketandso,inturn,it’sbeenhardtogenerateamaterialliftinaggregatewagesgrowth’.31

LaterinhistestimonyLowesayswithsurprisingfranknessthat:‘Alotmorepeoplehavejoinedthelabourforce.Wedidnotpredictthat’.32

Wherehasthissurgeinlaboursupplycomefrom?Loweonlymentionstherecentincreaseinlabourmarketparticipationofolderpersonsandwomen.ThereisnoreferenceatalltotheroleofNOMinenlargingAustralia’sworkforce.

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SincethistestimonytheRBAhasroutinelyrepeatedthisadmissionthatwagesgrowthcan’toccurunlessthereisatighterlabourmarket.

Whatabouttheprospectivestimulustobusinessinvestmentthatisimpliedbydeclininginterestrates?TheRBAislessforthcomingonthisissue.Butitseemsunlikelythatemployerswillinvestinlaboursavingequipmentwhentheyhaveaccesstoanamplelaboursupplytochoosefrom.Itmakessenseinthiscontexttorunexistingplantandequipmentabitharderorlonger,ortoemployextralabour.

OutcomesintheU.SandAustraliacomparedShouldtheRBAhaveglancedacrossthePacificitwouldhaveseenanotherexampleoftheimportanceoflaboursupplyinshapingeconomicoutcomes.Suchaglancewouldhaverevealedthat,intheU.S.,arecentsurgeinemploymentgrowthhasproducedtheoppositeresulttothatinAustralia.

AsTable3indicates,intheUSthissurgehasbeenaccompaniedbyareductioninunemployment,tolevelswellbelowthatinAustraliaandanincreaseinwageratesandinflation.Inthebusinesssector,realhourlycompensationincreasedby1.3percentin2017and0.8percentin2019.33

ThisupwardmovementinrealhourlywagesisofenormoussignificanceintheU.S.Itfollowsyearsoflowwagegrowthwheretheworkershareofrevenuehasbeenfallingrelativetotheemployershare.34

What’sdifferentbetweentheU.S.andAustralianexperiences?Onedifference,showninTable3,isthatwhereasinAustraliathesurgeinjobgrowthhasbeenapproximatelymatchedbylaboursupply,therecentsurgeintheU.S.hasseenjobgrowthexpandatamuchfasterratethanlaboursupply.

WhyhaslabourforcegrowthlaggedintheUnitedStates,bycomparisonwithAustralia?ItispartlybecauselabourforceparticipationseemstohavepeakedintheU.S.Itgrewbyjust0.1percentagepointsin2017-18andpartlybecausethecontributionofpopulationgrowthtolabourinputsisfarlowerthanisthecaseforAustralia(Table3).Thecivilianpopulationaged15+grewby1.6percentagepointsinAustraliain2017-18comparedwith1.0percentagepointsintheU.S.

ThedifferenceintherateofpopulationgrowthislargelyduetoNOM,whichinAustraliaisgrowingatanannualrateof0.9percentcomparedwith0.3percentintheU.S.

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Table3ComparisonofUSandAustraliaJune2017andJune2018

Civilianpopulationgrowth(age15+)June2017-June2018(%)

Labourforcegrowth(%)

Labourforceparticipationchange

Employmentgrowth(%)

Unemploymentrate(%)

U.S. 1.01 1.1 +0.1% 1.5 4.0Australia 1.65 2.6 +0.4% 2.8 5.4Sources:Australia:ABSTheLabourForce6202.0US:BureauofLabourStatisticsSept52019

Wedon’twanttomaketoomuchofthiscomparison,giventhattherearemanyotherfactorsaffectingit.

Nevertheless,itdoeshighlighttheminimalattentionpaidinAustraliatotheimportanceoflaboursupplyinshapingAustralia’scurrentsoggyeconomicconditions.

WhyhastheReserveBankignoredthiscomparativeevidence?ItseemslikelythattoevencontemplatethelessonsfromtheU.S.experiencewouldbetoimplythatthe‘jobsandgrowth’strategyispartoftheproblemratherthanpartofthesolution.

Tobefair,theRBAisnotaloneinthisshortcoming.ThesameistrueoftheTreasuryandmostmarketeconomists.

TheOctoberstatementofthenewheadoftheTreasury,DrStevenKennedy,toSenateEstimateson23October2019,illustratesthepoint.35Hetellsthepoliticiansthatthegoodnewsisthatemploymentisstrong,increasingby300,000overthepastyear.However,Kennedyadmitsthatthereisaproblem.Thisisthatdespite‘stronggrowthinemploymentoutcomes[theyare]partlyoffsetbyweakwageandnon-wageincomegrowth’.36

LiketheRBAheacknowledgesthatthisisbecause‘near-recordratesofpeoplearebeingdrawnintoemploymentandthelabourforce.’37Hespecificallyreferstothoseinolderagecohortsandwomenreturningtothelabourmarketafterhavingchildren.Thereisnomentionofthemigrantcontributionorthatacutinmigrationmightbeadvisable.NoristhereanyreferenceinhisstatementtotherecentU.S.experience.

Whywon’tCoalitiongovernmentadvisorsacknowledgetheroleofNOM?AnysuchreferenceseemstobeunthinkablegivenwhatitwouldimplyshouldtheAustraliangovernmentcontemplatereducinglabourforcegrowth(followingtheUnitedStatesexperience).Thisisdespitethelikelihoodthatitwouldforceemployerstocompeteforworkers,intheprocesspromptinghigherwagesandmoreattentiontolaboursavingorproductivityboostinginvestment.

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Theseoutcomeswouldrequirereducingpermanentmigration.Theywouldalsorequireareductionintemporarymigrationand,inparticular,areductionintheopportunitiesfortemporarymigrants(suchasstudents)toentertheAustralianworkforce.

Forstartersitwouldmeanreformoftheoverseasstudentindustrytoensurethatwhateducationproviderswereofferingwasavaluablelearningexperienceandqualification,notaccesstotheAustralianlabourmarket.ItwouldrequirehorticulturaliststoimprovepayandconditionsratherthanrelyonWHMsandothertemporaries.

AsignificantreductioninNOMto,say,theUSlevelofaround0.3percentoftheexistingpopulationperannum,woulddeprivethebigendoftownandespeciallythepropertymarketofanassuredsourceofgrowthinconsumerdemand.

Policychangesalongtheselinewouldsooninducelabourshortages,whichwouldinturnpromptgreatercompetitionforlabouranddelivertheRBA’ssofarunrealisedgoalsofincreasingrealwagesandinflation.

Perhapsthetideisturning.TheRBAisatleastquiteopenabouttheconnectionbetweenhighlabourforcegrowthandlowwageincreases.Thoughnottheroleofimmigrationinthisprocess.

Onerecentconvertnotonlyacknowledgestheroleofstronglabourforcegrowthindampeningwagesgrowthbutalsotheroleofimmigrationinthisgrowth.ThisisAlanKohler.InhislateststatementcriticisingtheRBA’sexclusivefocusonmonetarypolicyKohlermakesthefollowingpoint:

Thereisanotheraspectoffederalgovernmentpolicythatisweighingontheeconomy:immigration.Thankstorobustpopulationgrowth,GDPisgrowingatthesametimeasthereisflattonegativepercapitaincomeandoutput.Theextrapopulationisafactorinreducingwagesgrowth,whichinturnweighsonspendingandinflation.38

Thereferencetoimmigrationishighlyunusual.Kohlerdoesnotgoontorecommendacuttoimmigration,thoughitisimplied.PerhapshewasthinkingthatifthisoccurredAustralia’smeagretwopercentgrowthinGDPwouldbethreatened.

Noneofthecommentatorsmakeanylinkbetween‘jobsandgrowth’andAustralia’srecentdrasticfallinlabourproductivity.

Buttheprobableoutcomeisthatshouldthe‘jobsandgrowth’strategybesustained,wefaceafutureoflowlabourproductivitygrowth.

Thisscenarioisnevercontemplated,becauseofthewidespreadbeliefamongst‘jobsandgrowth’advocatesthatAustraliahasthepotentialforahighproductivityfuture.Allthatisneededisanotherboutofeconomicreform.

Wereturntoacloseranalysisofthelabourproductivityoutlooklaterinthispaperafterexaminingtheprospectsofsuchareformagenda.

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The‘wayout’:furthereconomicreformTheCoalitiongovernmentalongwithitseconomicadvisorsandmostmarketeconomistsassertsthatanotherboutofeconomicreformwillrechargetheeconomy.Thiswillincludelowerbusinesstaxes,amorecompetitivelabourmarketandmoreencouragementtoexportersvianewFreeTradeAgreements.

TheLaborOppositionisevenmoreboundtothisreformvisionandgaggedbyit,asareAustralia’scentre/leftknowledgeelites.TheLaborOppositionistheproudheirtotheHawke/Keatinglegacyofneoliberaleconomicreform.ThislegacyhasiconicstatuswithinLabor’sleadershipranks.

Asfortheknowledgeelites,theyalsobelievethatAustralia’swayforwardmustbeviabecomingamoreinternationallycompetitiveknowledgeintensiveeconomy.

Furthermore,forthoseonthecentre/leftitissimplyuntenabletoevenaskthequestionwhetherhighmigrationmightbepartofthecurrenteconomicproblem.Thisisbecausehighmigrationisintertwinedwiththeircommitmenttoculturaldiversity,internationalismandopenborders.

LaborandAustralia’sknowledgeelitesareasonewiththeCoalitiongovernmentinarguingformoreassistancetoR&D,innovationandassociatedskillstraining.WheretheydifferfromtheCoalitionisthattheythinksuchinitiativesshouldbeaccompaniedbymoresocialreform.

Forthoseinterestedinacomprehensivestatementofthisperspective,agoodstartisthe2018monographbyStephenBellandMichaelKeatingentitledFairShare,CompetingClaimsandAustralia’sEconomicFuture.39Thisisanimpressiveanalysis.ItharksbacktothestrandofreformPaulKeatingisbestknownfor.Thisisthecombinationofsocialreform(theextensionofMedicare,compulsorysuperannuationandthelike)andtheneoliberalreformsopeningtheeconomytomorecompetitivepressuresimplementedinthelate1980sandearly1990s.BellandMichaelKeatinghavenothingtosayaboutAustralia’sincreasedrelianceonpopulationgrowthforitsgrowthinGDP.

BellandKeatingadvocatesocialreformaimedatdiminishingeconomicinequalityandincreasingthelabourshareofvalueadded.Theyarguethatifsuchreformsareaccompaniedbyacontinuingcommitmenttoanopeneconomy,alongwithgreaterinvestmentinhighereducationandR&D,theresultwillbeaflourishingofknowledgeintensiveindustries.

Theythink,asdootherprominentthinktanks,includingtheCSIRO,thatifthesereformsareimplementedAustralianbasedenterpriseswillprosper,especiallybyfindingnichesaspartofmultinationalenterprisesupplychains.

AccordingtotheCSIROlinkswithsupplychainsofthiskindarecrucialtotheadoptionofnewtechnology.However,ominously,theCSIROhastoadmitthatAustraliacurrentlyranks‘lowestinglobalvaluechainsparticipationofanydevelopednation.’40

Notwithstandinggovernment,oppositionandthinktanksupportforcontinuingcommitmenttoanopeneconomy,togetherwithgreaterinvestmentineducationandR&D,itisnotlikelytoworkundercurrentsettings.Here’swhy.

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TheprospectsforknowledgeintensiveindustriesinAustraliaAustraliadoesnothavethefoundationforsuccessfulinternationallycompetitiveknowledgeintensiveindustriesinplace.FewmultinationalswillseriouslycontemplateestablishingabaseinAustralia,orbuildingonanexistingenterpriseinordertoincorporateitintotheirinternationalsupplychain.

Thisisbecause,inthecaseofmanufacturing,mostoftheenterprisesexistinginthe1980s,whenHawkeandKeatinginitiatedtheirreforms,havesincebeenwipedout.AsforICTsoftwareandhardwareindustries,Australianbasedenterprisesbarelyevengotstarted.

TheknowledgeintensiveindustryrecordEmploymentinmanufacturingheldupuntilthestartofthemineralconstructionboomin2003.ItwasalegacyofthedecadesofsupportformanufacturingsinceWW2,whenhightariffsandlocalcontentquotasencouragedbothlocalmanufacturersandinternationalenterprisestosetupanAustralianproductionbase.Thissupportincludedtargetedindustrypolicy,directedatensuringAustralianenterprisescouldavailthemselvesofthelatesttechnology.ThevariousindustryplansinitiatedwhileSenatorButtonheldtheindustryportfoliointheHawke/Keatinggovernmentsarethebestknownexamples.

Muchofthemanufacturingbasebythe1980swassmallscale,lowtechnology(aswithclothingandfootwear)andwasinefficientbyglobalstandards.Butitalsoincludedknowledgeintensiveindustriesinthetelecommunications,pharmaceuticalandmotorvehicleindustries,amongothers.

OverseascompaniesbroughtthelatesttechnologytoAustraliawhentheysetuphere.Theyhadto,becausetheywerenotallowedtosellintotheAustralianmarketunlesstheyestablishedaproductionbasehere.TheyhadtobringthelatesttechnologybecausetheynormallyhadtocompeteagainstothermultinationalsattractedtotheAustralianmarket.

Duringthe1990sandearly2000s,mostoftheselegacymanufacturerssurvived,despitelowerprotectivetariffs,partlybecauseofthelowAustraliandollar.Manufacturingexportsactuallyexpandedduringthisera.Insomecases,includingthemotorvehicledesignandassemblyindustries,exportsdidnotpeakuntiltheearly2000s.

AustralianeconomicpolicyandthedemiseofmanufacturingAllthiscametoanendduringtheresourcesconstructionboomstartingin2003.AustralianmanufacturershadtocopewithasharpriseinthevalueoftheAustraliandollarflowingfromthefloodofforeigncapitalbroughtintofinancetheboom.Theyalsohadtodealwiththerisingcostsoflabourandmaterialsatthistimebecauseofcompetitionfrominternationalresourcecompaniesintentonbuildingtheirminesintimetocapturerevenuefromtheconcurrentboomincommodityprices.

Employmentinmanufacturing(detailedshortly)fellsharplyduringthisperiod.ThisdeclinewasexactlywhatTreasury,theRBAandothereconomicadvisorshopedtoseehappen(eveniftheydidnotacknowledgethispreferenceinthepublicarena).FromtheirperspectiveAustraliahadbeenpresentedwithahugepotentialprize–anopportunitytosupplyamassive

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newChina-basedmarketforironoreandmetallurgicalcoal(amongstothernaturalresources).

TheboomprovidedanopportunitytoachievewhattheHawke/Keatingreformershadwanted,thatis,forAustraliatofindacompetitivenicheinglobalmarkets.One,thatis,thatreflectedAustralia’scomparativeadvantage(freefromtarifforotherprotectivesupport).

Inordertoensuretheopportunitywasnotmissed,theadvicefromTreasury,thePCandmosteconomists,wastofacilitatethe‘structuraladjustment’oftheAustralianeconomy.ThePCplayedacrucialrole.ItsrecommendationstogovernmentinvariablyrejectedanyappealsfromAustralianmanufacturersforsupportagainstinternationalcompetition.Itadvisedthatanylossofemploymentwouldbecompensatedbyexpansioninindustriesthatcouldcompeteintheinternationalmarketplace.ThePCneverspecifiedwhatthesenewindustriesmightbe.

ItwasadvicethatwasembracedbytheCoalitiongovernmentduringthe2000sandbyLaborafteritwonofficein2007.

Thehighestprioritywasgiventoensuringthattheresourcesboomproceedwithoutbeingimperilledbyanysurgeinthecostsoflabour,capitalandmaterials.TheconcernwasthatanysuchsurgecouldcompromiseAustralia’sopportunitytocapitaliseonitsnewfoundcomparativeadvantage.

ThepermanentheadofTreasury(KenHenry)declaredin2006thatthisadjustmentmustbe‘characterisedbyasizeableshiftinresourcesfromimportcompetingmanufacturingtoresourcesandtothesectorsofeconomycomplementarywithChina’sdevelopmentneeds’.41

ThiswasthepositionoftheseniorlevelsofTreasuryandalltopRBAofficials.TheymadenoattempttoslowtheriseoftheAustraliandollar,becausetheysawthisashelpingtopromotethedesiredchange.

Tothisendtheywelcomedhighlevelsofforeigninvestmentinthemineralindustryandhighdependenceonimportsoftherequiredplantandequipmentduringtheconstructionphase.Thoughthefinancingmainlycamefromoverseas,itrequiredthepurchaseofAustraliandollarsandthuscontributedtotheriseintheAustraliandollar.

AllcallsfrominterestsrepresentingAustralianproducersofproducts(likethefabricatedsteelneededinconstruction)wererejected.Sowereappealstoapplylocalcontentprovisions,inordertoensurethatAustralianenterprisesgotashareofthemarketfortheinputsrequiredduringtheconstructionphase.Theoutcomeisbestrepresentedbywhathappenedwiththehugeliquidpetroleumgasplantsbuiltinthelastcoupleofdecades.Thedesignandmanufactureofcomponentsoftheseplantswasmostlycompletedoffshore,thentransportedandassembledinAustralia.

ThecontrastwithNorwaywillhelpmakethepoint.WhentheNorwegiansdevelopedtheiroffshoreoilandgasreservesduringthe1980sand1990s,theNorwegiangovernmentstipulatedthatNorwegianenterpriseshadtobeinvolvedasaconditionforallowingtheforeignoilgiantstoparticipate.ThegovernmentstipulatedthatStatoil(thewhollyowned

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Norwegianoilandgasfirm)beinvolvedinjointprojects.OnceStatoilgainedthenecessaryskillsandexperience,ittookovermostofthefurtherdevelopmentofNorway’soilandgasreserves.

OneresultisthatmostoftheprofitsfromthesereservesnowflowtotheNorwegiangovernmenttreasury.AnotheristhatStatoilhasbecomeaninternationalgiantwithspecialistskillsindeepseaoildiscoveryanddevelopment.

LookingbackattheendofhislongtenureasGovernoroftheRBA,GlenStevensstatedinAugust2016thattheBankcandrawmuchsatisfactionfrommanagingthemassivetransitionrepresentedbythemineralinvestmentboom.Hesays‘we’vehadamassiveeventthat’smadeusasacountryricher….Unlessyou’reanuber-pessimistaboutpricesinthelongrun,I’darguewe’rebetterforhavingdonetheinvestment,particularlysinceforeignershelpedfundit.’Also,headds,wemanagedthiseventwithouttheinvariableconsequencesinthepast,thatis,averydisruptive‘periodofveryhighinflationandoverheatingfollowedbyquiteadeepdownturn.’42

Australia’seconomicpolicymakershavecontinuedtopursuethisinternationalcomparativeadvantagestrategy.BothLaborand,since2013,theCoalition,havepursuedfreetradedealsdesignedtoprovidegreaterexportaccessforAustralia’smineralandagriculturalproducts.Inreturn,thesegovernmentshavebeenwillingtonegotiateawaytheremainingtariffbarrierstotheimportofmanufacturedgoodstoAustralia.TheChinaFreeTradeAgreementsignedbytheAbbottCoalitiongovernmentin2015doesnotjustremovethesebarriers.Inaddition,itprecludestheAustraliangovernmentfromanyindustrypolicythatprivilegesAustralianenterprises.IntheagreementwithChina,anysuchindustrypolicymustalsoofferthesameincentivestoChineseenterprises.

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TheconsequencesforknowledgeintensiveindustriesEmploymentinmanufacturinginAustraliafellby54,846overtheyears2006to2011andbyamassive252,511overtheyears2011to2016.

Table4Changeinmanufacturingjobsbyindustry,2006to2011and2011to2016

Source:ABSLongitudinalCensusdatabase2006-2011-2016viaABSTableBuilder

Inadditiontojoblossesinthemanufactureofmotorvehiclesandmotorvehicleparts(14,314jobslostfrom2011-2016)therewerelossesinotheradvancedmanufacturingoverthesameperiod.Theseincludeelectricalequipmentmanufacturing(down8,359),specialisedmachineryandequipmentmanufacturing(down13,006)andcomputerandelectronicequipmentmanufacturing(down6,279).

Therehavebeenfurtherfallssince,suchthatby2019manufacturingemployedjust7percentofAustralianworkers.Thisleveliswaybelowtheshareinotheradvancedeconomies.43

Oneresultisthattherehasbeenonlyatinyincreaseininvestmentinmachineryandequipmentinnon-miningbusinessesinAustraliaovertheyears2009-10to2016-17.Thisisahugedropbycomparisonwiththefinancialyears1999-00to2008-09,whensuchinvestmentincreasedonaveragebynearly10percentayear.44BellandKeatingnoteasimilardrasticdeclineinICTinvestmentinmanufacturingindustriesoverthesameyears.45

ThemainreasonforthisoutcomeisthatthemanufacturingbaseinAustraliahasbeensoerodedthatthereislittleleftthatmightprovidethefoundationforfurtherinvestmentinadvancedtechnology.

IndustryofEmploymentCountemployedin2006

Countemployedin2011

Countemployedin2016

Changeinemploymentbymanufacturingsector2006-2011

Changeinemploymentbymanufacturingsector2011-2016

Changeinemploymentbymanufacturingsector2006=2016

Manufacturing,nfd 88,616 91,818 53,749 3,202 -38,069 -34,867MotorVehicleandMotorVehiclePartManufacturing 73,275 54,294 39,981 -18,980 -14,314 -33,294PolymerProductManufacturing 50,834 39,886 29,740 -10,948 -10,147 -21,095BasicFerrousMetalManufacturing 39,439 41,140 23,274 1,701 -17,866 -16,165FurnitureManufacturing 39,987 31,124 26,024 -8,863 -5,099 -13,962OtherWoodProductManufacturing 35,455 34,604 22,800 -851 -11,804 -12,655ClothingandFootwearManufacturing 23,769 18,254 11,844 -5,516 -6,409 -11,925OtherFabricatedMetalProductManufacturing 24,179 20,557 13,466 -3,622 -7,090 -10,712StructuralMetalProductManufacturing 31,575 30,713 21,723 -862 -8,990 -9,852PrintingandPrintingSupportServices 42,074 34,025 32,271 -8,049 -1,754 -9,803ElectricalEquipmentManufacturing 20,201 18,804 10,445 -1,397 -8,359 -9,756SpecialisedMachineryandEquipmentManufacturing 21,057 24,899 11,893 3,842 -13,006 -9,165ComputerandElectronicEquipmentManufacturing 18,077 15,858 9,580 -2,219 -6,279 -8,497TextileProductManufacturing 16,920 13,948 8,932 -2,971 -5,017 -7,988BasicFerrousMetalProductManufacturing 10,746 9,570 3,304 -1,177 -6,266 -7,443ConvertedPaperProductManufacturing 18,106 15,624 10,777 -2,483 -4,847 -7,329OtherTransportEquipmentManufacturing 32,222 29,832 25,509 -2,390 -4,323 -6,713BasicNon-FerrousMetalProductManufacturing 12,160 7,729 6,135 -4,431 -1,594 -6,025Cement,Lime,PlasterandConcreteProductManufacturing 19,032 18,610 13,009 -423 -5,601 -6,024LogSawmillingandTimberDressing 14,237 10,403 8,630 -3,834 -1,774 -5,607MachineryandEquipmentManufacturing,nfd 9,988 10,201 4,711 212 -5,490 -5,278FruitandVegetableProcessing 13,849 12,325 8,742 -1,524 -3,583 -5,107Allothermanufacturing 381,467 398,201 333,370 16,734 -64,831 -48,097Total 1,037,264 982,418 729,906 -54,846 -252,511 -307,358

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Oncetherehasbeenafire-saleofcapitalassetswithbusinessessheddinglabourandequipmenttotryandstaysolvent,itisverydifficultforthesebusinessestoexpandevenifsubsequentdepreciationofAustralia’scurrencymakesthemmorepricecompetitive.Akeyreasonforthisisthattheequipmentthatwasusedpriortobeingscrappedwasmostlikelydepreciated,givingalowerhurdletomakeanadequatereturnonthecapitalinvested.However,wherecapitalexpendituretoessentially‘startfromscratch’again,itrequiresamuchhigherreturnratehurdletomeet,makingitverydifficultforcapitalintensiveindustriesthathavebeendecimatedtoeverriseagain.Noristhereabasewhichmightserveasafoundationfortheknowledgeelites’hopesthatAustralianenterprisescouldlinkintomultinationalenterprises’supplychains.

Australia’srecordwithadvancedservices,particularlywiththosestemmingfromthedigitalrevolution,ismuchthesameaswithadvancedmanufacturing.Australiahasbeenanon-starterintheICTsoftwareandhardwareindustriesandinthecreationofnewenterprisesbasedontheglobalITplatformsnowavailable.

Australia’straderecordinknowledgeintensiveindustriesAustralia’sde-industrialisationhasresultedinagrowingdeficitontradeinknowledgeintensivegoodsandservices.

Australiaisanetimporterofsuchservices,includingICTrelatedservices.

Moresignificantly,itisamassiveimporterofadvancedmanufacturedproducts.TheDepartmentofForeignAffairsandTradeprovidesanannualroughproxyfortradeinsuchproductsthroughitsidentificationoftradeinElaboratelyTransformedManufactures(ETMs).Theseincludeallmanufacturedproductsexceptlightlyprocessedmineralandagriculturalcommodities.46

Since2014-15Australia’sexportsofETMshavehardlymoved,from$29.2billiontojust$31.2billionin2017-18.

Overthesamethree-yearperiodAustralia’simportsofETMshavejumpedfrom$176.8billionin2014-15to$216.1billionin2017-18.ThedeficitinETMtradehasriseninjustthreeyearsfrom$147billionto$184.9billion.Thelatterisanenormousfigure,equivalenttoabouttenpercentoftotalAustralianGDP.

TheETMdeficitisalmostexactlybalancedbyAustralia’snetexportofprimaryproducts,whichwas$186.1billionin2017-18.

ThesefigurescapturetherealityoftheAustralianeconomy.Itsnicheininternationalmarketsisthatofaprimaryproducer.This,aswehaveseen,isbydesign.

Wehavea‘jobsandgrowth’economythatisdeliveringcontinuedGDPgrowth,butwithoutoneofthemostimportantsourcesofproductivitygrowthstillevidentinotheradvancedeconomies,thatis,skillhubsofknowledgeintensiveindustries.

OneresponsetotheseobservationswillbethattheydiscountthepotentialoftheadditionalneoliberalreformAustralia’sCoalitiongovernmenthaspromised.

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Wedon’tthinkso.Thisjudgementisbasedonobservationsoftheexperienceofothersmallcountriesthathavemanagedtodevelopsuchknowledgeintensiveindustries.TheyincludeIsrael,Singapore,SwedenandDenmark,whichhavesucceededdespitebeingsmallinsizeandstartingbehindtheUS,JapanandWesternEurope.

Theyhaveachievedthesegainsbypursuingatargetedindustrypolicy,whichissimplynotevencontemplatedbyAustralia’seconomicpolicyelites.HerearesomenotesonIsraeltoillustratetheargument.

TheIsraelexampleIsraelindicateswhatcanbedoneviatargetedindustrypolicy.InjustafewdecadesIsraelhasbecomeaglobalICTplayer.OnemeasureofIsrael’sachievementisthattherearesome280foreignhi-techdevelopmentcentreslocatedinIsrael.Allthegiants,includingIntel,Microsoft,CiscoandAlphabet(Google)haveaproductdevelopmentpresencethere.47

ItistruethatIsraelienterprisesarebetteratgeneratingvaluablestart-upsthantheyareintranslatingtheirideasintotheproductionanddistributionphase.Nonetheless,therearesomestunningsuccesses,particularlyininternet-securitysoftwareproducts.In2014,IsraelicompaniesgeneratedsomeUS$6billionofinternet-securitysoftwareexports.48Allofthiswasachievedinacountrywithjustovereightmillionpeople.

TheIsraeligovernmenthaslongtargetedtheICTsectorforsupport.Thissupportcomesinvariousforms,butnotablyfromtheOfficeoftheChiefScientist(OCS)andtheBi-NationalIndustrialResearchandDevelopmentFoundation(BIRD).TheOCSisnothinglikeitsAustraliannamesakewhichforyearshasfunctionedasalobbygroupforuniversityresearchsupportandasapublicadvocateforscience.However,theAustralianOCShasnofundstoinvest.

TheOCSinIsraelihasfordecadesbeensearchingforgoodstart-upprospects.Itisfundedtodistributefundsdirectlytothemostpromisingstart-ups.BIRDdoessomethingsimilarinregardtopromisingventures.ItisalsotaskedtolinktheseventurestoprospectiveventurecapitalistsandICTfirmsintheUS.49

WheredotheskilledICTprofessionalscomefrom?MainlyfromtargetedtrainingintheuniversitysystemandintheIsraeliDefenceForce(IDF).InthecaseoftheIDF,allIsraelisarerequiredtoprovideanumberofyearsofservice.TheIDFisheavilyengagedindevelopingitsownweaponsandintelligencenetworks.TothisenditselectsrecruitsforrelevanttechnicaltrainingandsubsequentR&Dwork,particularlyinelectronics.Thisbasehashelpedattracttheforeigndevelopmentcentresnotedabove.TheytoohavesincebecomeanimportantsourceofexperiencedICTprofessionals.

Asindicated,suchinterventioncannotbecontemplatedinAustralia.

Therehasbeenoneexception.ThiswastheTurnbull-ledCoalitiongovernment’sestablishmentofaninnovationagendain2016.

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AnAustralianexception?Turnbullclaimedthathisagendawouldfillthegapleftbytheendoftheresourcesboom.Heassertedthat‘Ourinnovationagendaisgoingtohelpcreatethemodern,dynamic,21st-centuryeconomyAustralianeeds.’50

Turnbull’sinitiativeputgreatemphasisonthepromotionofexcitingideas,whichheassociatedwiththeinternetandtheopportunitiesitcreatesforentrepreneurstogainaccesstoglobalmarketsandforITstart-upsthatwilldevelopappsthatwillfacilitatethisaccess.Inhiswords,thepackageis‘designedtoinspire.’51

NotmuchhascomefromtheICTinitiatives.AustraliadoeshavesomevibrantICTapplicationstart-ups,thebestknownofwhichisaltassian.Andthereareprospectsformoregiventhatsuchstart-upscanutilisetheexistingdigitalplatformsandcomputingpowerofthecloud,withminimalcapitalinvestment.

However,Australiastartsinthisracewaybehindothercountries.ItwilltakethekindofstatecommitmentshowninIsraelbeforeanysignificantimpactonglobalmarketsisachieved.

Ofmoresignificance,Turnbull’sInnovationAgendacontainedelementsofanindustrypolicy.Therewereadditionaltaxincentivesforstart-upsandforincubatorsthatcannurtureideascomingfromAustralia’sresearchinstitutions.AndtherewasacommitmentfromtheCommonwealthgovernmenttoprovideinvestmentfundsforthebiosciencesector,whichwasfocussedonturningAustralianpharmaceuticalproductresearchintomarketabledrugs.

Theplanwasforthefundtooperateinpartnershipwithprivatesectorventurecapitalists.Thegovernmentcreateda(modest)$500millionfund,$250millionofwhichistobeprovidedbytheCommonwealthandtherestbytheprivatesector.Thelatterfundsweretoberaisedby‘competitivelyselectedprivatesectorfundmanagers’overtheyears2016-17and2017-18.

Intheevent,nothingmuchcameofthebioscienceinitiative.Ithasbeenquietlyshelved.ThefinancialassistancewastoolittleandtoolatetoovercomeAustralia’sdisadvantageinthisarea.Forexample,itcostsoftheorderofUS$1.2billiontocompletetheprocessforgainingaccreditationintheU.Sforanynewdrug.52

AccordingtoDrGautam,headofthePacificoperationsofPfizer,ofthebiotechcompaniesinAustralia,90percenthavefewerthan10employees.Furthermore‘ofthe787newdrugsapprovedbytheUSdrugregulatorinthepast25yearsAustraliacontributedlessthan1percent’.53

LessonsfromtheAustralianexperienceKnowledgeintensiveindustriesacrosstheglobearedominatedbygiantmultinationalcorporations.Theyarewillingtoincorporatepromisingsmallcountryenterprisesintotheirsupplychainsiftheyseemprofitable.

Australiadoesnothaveabaseinsuchenterprises,thoughitcertainlypossessesthepotentialskillstomakeamarkininternationalmarkets,justastheIsraelishave.MostofAustralia’sGroupof8universitiesarerankedwithinthetop100researchuniversitiesacrosstheglobe.Thisisaremarkableachievement.Butthesehighrankingsarebasedonscientificpublicationspublishedintoptierinternationaljournals.Itisessentiallyblueskyresearch,aswehave

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pointedoutelsewhere.54Paperswhichfocusonappliedresearchhavelittlechanceofbeingacceptedinthesetoptierinternationaljournals

ThisisoneofthereasonswhyAustralianuniversitieshavesuchapoorrecordofcollaborationwithcommercialfirms.AccordingtotheAustralianCouncilofLearnedAcademies,AustraliahastheworstrecordofsuchcollaborationamongstOECDnations.55

TheIsraelicaseindicatesthatsuchskillshavetobemobilisedwithindustryutilisationinmind.Itisnotenoughtoleavetheindustrycomponenttothemarketplace.Thisrequiresindustrypolicy.Comparativeadvantageininternationalmarketshastobecreated.Australia’scurrenthandsoffstrategywillnotwork.

ConsiderthecaseofCSL,Australia’smostsuccessfulknowledgeintensiveandinternationallycompetitiveindustry.Itisthemajorplayerintheglobalbloodproductsindustry.CSLcontinuestomaintainanAustralianbaseandcontinuestolocatenewinvestmentinproductionandresearchcapacityinAustralia.

CSLisanAustralian-governmentmadeenterprise.By1994whenitwasprivatisedbytheKeatingLaborGovernment,ithadreceiveddecadesofgovernmentprotectionandfinancialassistance,makingitAustralia’s‘largestpharmaceuticalenterprise,afullyintegratedmanufacture(sic)inserumfractionation,humanandveterinaryvaccines,antitoxins,antivenoms,insulin,antibioticsanddiagnosticswithsome1100employeesand140researchstaff.’56

IthadalsoreceivedconsiderablehelpfromtheFactorfschemeintroducedbythefederalgovernmentinthelate1980swhichpaiddrugcompaniesapremiumpriceiftheyincreasedtheirproduction,R&DandexportsfromAustralia.ThetaxpayersubsidytoFactorfwasgraduallyparedbackattheendof1990s.TheProductivityCommissionsupportedthismove.

CSL’svalueinthemarketplaceby1994wasattributabletothishighlyspecificindustrypolicy.Withoutthatbasisitcouldneverhaveachieveditssubsequentglobalsuccess.

Thelong-termImplicationsforlabourproductivityAlladvancedeconomieshaveexperiencedaslow-downintherateoflabourproductivitygrowthsincethelate1990s.Thisispartlyaconsequenceoftheincreasedshareofserviceindustriesintheseeconomies,includinghealthandeducationwhichgenerallyachievelowlabourproductivitygains.

Butmost(notincludingAustralia)dopossessknowledgeintensiveskillhubswhichcontinuetogeneratenewtechnology.TheseincludeadvancesinindustrialrobotsandotherautomatedprocessesbasedonICTinnovation.

Advancedmanufacturinghasbeenthemainrecipientofthisinnovationandthusshowsthebestrecordoflabourproductivitygrowth.AsBellandKeatingsummarisetheliterature:‘Inmostadvancednations,manufacturingcontinuestobeadriverofproductivitygrowthandinnovation,accountingforupto90percentofprivateR&D.’57

Investmentinautomationandotheradvancedtechnologyhasbeenstronginmostadvancedeconomiesoverthepastdecadeorso.Thishassometimesbeenassociatedwithnetfallsin

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manufacturingemployment,ashasbeenthecaseintheUS.ButthefallintheUSis,inlargepart,becauseofincreasedlabourproductivityresultingfromtheinvestmentreferredto.58Thoughemploymentinmanufacturinghasfallen,labourproductivityinthesectorcontinuestoincreasestrongly.

NotsoinAustralia.LabourproductivityinAustralianmanufacturingenterpriseshasplummetedalongwithfallingemployment.AccordingtothePC,labourproductivitywithinAustralia’smanufacturingsectorfellfromanannualaverageincreaseofsome1.3percentagepointsovertheyears2003-04to2011-12tominus0.2percentagepointsayearbetween2011-12to2017-18.59

WhenitcomestointernationallycompetitiveindustriesinAustralia,thereisjustonestandoutasregardslabourproductivity.ThisisAustralia’scommodityindustries.Theyarestars.Butthelabouremployedintheseindustriesistiny,suchthattheproductivitygainstheygenerateareaddingverylittletoAustralia’soverallpercapitaproductivityrecord.

True,thereareotherpotentialpossibilitiesforadvancesinlabourproductivity,especiallyinvestmentofnewdigitaltechnologiesintheretail,finance,professionalservicesandotherindustriesservicingthedomesticmarket.

Wenowturntoexploringtheprospectsforsuchproductivitygains.

ProductivitygainsinindustriesservingthedomesticmarketMorethanthreeoutoffourpersonsemployedinAustraliaworkinoneorotheroftheserviceindustries,andthisproportionisgrowingstrongly.

Oneresponsemaybethatthisisgoodnews.ThisisbecausewithadvancesinICT-basedtechnologythereishugepotentialforproductivitygainsintheseserviceindustries.Wereferheretothepotentialgainsfromnewsoftwarepackagesinaccounting,paymentsystems,graphicdesign,engineeringdesignanddraftingfunctionsaswellasintheorderingandsupplyofconsumergoodsandthelike.

Therearelegionsofcommentatorswhoforecastthatcontinuedadvances,aswithartificialintelligenceandintelligentmachineswillacceleratethispotential.Wealsosharetheviewthatafourthindustrialrevolutionisimminent.Withthedevelopmentofubiquitousconnectivitythrough5G,satellite,narrowbandIoT(internetofthings)andothertechnologies,remotesensingtechnologiesandthereducingcostofsensorsthereisthepotentialforadramaticreshapingofthevaluechainofmanyindustries.

GiventhatAustraliahasagoodrecordasanadapterofnewtechnology,whywouldn’ttherebearapiduptakeofthispotential?

Maybeinwillhappen.Howevertherecordtodatedoesnotsupportsuchoptimism.Thereweresomegainsinlabourproductivityindomesticeconomyorientedindustriesduringtheperiod2011-12to2017-18.Theyhavebeennotableinthefinance,informationandwholesaleindustries.Ontheotherhand,labourproductivityintheareasofeducation,healthcareandpublicadministrationhashardlymoved.

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AsTable1indicates,Labourproductivitygrowthforthewholeeconomyoverthisperiodaveraged1.2percentperannum.Thisincludedthecontributionsofthemanufacturing,miningandagriculturalsectors.Manufacturing,aswehaveseen,contributedverylittleduringthis2011-12to2017-18period.

However,asnotedearlier,overthelastfewyearstheannualincreaseinlabourproductivityfortheentireAustralianeconomyhasfallen,from0.9percentagepointsin2016-17,to0.2percentagepointsin2017-18andtominus0.1percentagepointsin2018-19.

ThePC’sexplanationforthisslumpinlabourproductivity(likethatoftheTreasurer,citedearlier)isthatitisduetoaslow-downinadditionsofnewplant,equipmentandintellectualproperty(softwareandthelike).ThePCreportsthatinsomeindustriesthecapitalstockperworkerisfalling.Thisitlabels‘capitalshallowing’(theoppositeof‘capitaldeepening’).60

TheTreasuryhasputasimilarargument.MeghanQuinn,TreasuryDeputySecretary,hasstatedthatasidefromtheminingandenergysector,mostfirmsinothersectorshavelaggedinadoptingnewdigitaltechnologies.This,sheclaims,wasthemajorreasonfortherecentdropinlabourproductivity.61

Whyarebusinessenterprisesreluctanttoinvestinnewtechnology?TheTreasurerandsomeothercommentatorssaythatfirmsaremoreinterestedinreturningcapitaltotheirshareholdersthantheyareinriskingcapitalinnewtechnology.However,asflaggedearlier,thereisanotherfactor.ThisisAustralia’s‘jobsandgrowth’strategy.

Itisgoingtogetworse:Australia’slowproductivitytrapWhilethe‘jobsandgrowth’strategyremainsinplace,itislikelytherewillbemoreofthesameoutcomesthatwehavedescribed.Thatis,lowlabourproductivitygrowthandasluggisheconomy.Thiswillcertainlynotpromptare-evaluationofthemeritsofrelyingonpopulationgrowthasthecoredriverofGDPgrowth.That’sbecauseitistheonedriverthatisdeliveringsustained,iflow,economicgrowth.

Thissituationisstimulatingfranticcallsformorestateinvestmentineducationandhealthcare,formoreinfrastructureinvestmentandmorestimulustorevivethehousingindustry.

However,allthreeoftheseresponseswillexacerbatetheproductivitytrap.

Moreinvestmentinhealthcareandeducationwillmeanafurthershifttowardsthenon-marketservicesectoroftheeconomywherethereisminimalgrowthinlabourproductivity.

Asforinfrastructureinvestment,thisismainlyaboutfillingbacklogsinthemajorcitiescausedbyrapidpopulationgrowth.Suchactionswilldolittletoadvancelabourproductivity,despitetheclaimsoftheTreasurer,JoshFrydenberg.62Theprojectsbeingsupportedarelargelyaboutcoveringbacklogsintransportinfrastructure,backlogsthatwillcontinuetoaccumulatewhilethe‘jobsandgrowth’strategyremainsinplace.

MuchthesameoutcomeislikelyshouldtheAustraliangovernmentmanagetorevivethehousingindustry.Therewillbenolabourproductivitydividend.Moreover,asBellandKeatingassert,ahousingrevivalwillencourageafurtherboutofdebtdependentinvestment.They

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saythat‘pouringresourcesintothehousingandconstructionsectorreflectsamisallocationofresourcecomparedwithpotentiallyhigherproductivitygrowth-enhancingsectors.’63

ConclusionTheCoalitiongovernment’s‘jobsandgrowth’strategyisfirmlyinplace.Thoughthepublicisnotinformedonthematter,theGovernmentanditseconomicadvisorsareawareoftheimportanceofstrongpopulationgrowth(largelyderivingfromNOM).TheyknowthatthisisneededtoprovidetheextraproducersandconsumersifGDPistokeepgrowing(evenifatalowpace)andAustraliaistomaintainitsrecordof28yearsofunbrokeneconomicgrowth.

Ouranalysisconfirmsthisbelief.In2018-19AustraliamanagedGDPgrowthofjust1.9percent.Itdidsobecauseofthecontributionoftheseextraproducersandconsumers.

WehavearguedthatthepursuitofthisstrategyiscontributingtotheveryproblemsoflowwagegrowthandlowinflationthattheRBAandtheCoalitiongovernmentbemoan.

TheReserveBankhasbelatedlyacknowledgedthisjudgement.Itnowadmitsthatitsmonetarypolicystrategyhasnotworkedbecauseofrapidgrowthofthelabourforce.

PhillipLoweandhiscolleagueshaveforyearsassertedthattheirsuccessivereductionsininterestrateswouldputmoredollarsintothepocketsofconsumersandthatthisinturnwouldpromptextraconsumption,morecompetitionforlabour,higherwageratesandaboosttoinflation.

Noneoftheseoutcomesoccurred.AstheRBAnowadmits,themassiveboosttoAustralia’slaboursupplyoverthepastfewyearshasmeantthatanyincreaseinconsumptionduetointerestratereductionshasbeenoffsetbycompetitionforavailablejobsgeneratedbytheboostinlaboursupply.

Inotherwords,‘Jobsandgrowth’ispartoftheproblem,ratherthanthesolutiontoAustralia’srecentrecordofloweconomicgrowth,lowbusinessinvestmentandlowlabourproductivity.

Whatwasthecauseofthissurgeinlaboursupply?AccordingtotheRBA,itwasanincreaseinlabourmarketparticipation.Aswehaveshown,thiswasafactor,butlesssignificantthantheboostfromNOM.TheRBAisnotpreparedtoacknowledgethis,presumablybecauseitwoulddrawattentiontothedeficienciesofthe‘jobsandgrowth’agenda.

TheAustralianeconomyisstuckinaquagmire.TheCoalitiongovernmentwon’tbackofffromits‘jobsandgrowth’strategybecauseitknowshowimportantpopulationgrowthisinsustainingatleastmodestgrowthinGDP.

Eveniflabourparticipationstopsincreasing(ashasbeenthecaseintheU.S.inthelastfewyears)aslongasNOMisleftunchangeditwillgiveahugeboosttoAustralia’slaboursupply.If,asmanyconsiderlikely,employmentgrowthsubsidesabit,suchisthescaleofNOMthatitwillmeanthatemployerswillstillnothavetocompeteharderfortheworkerstheyneed.

Whilethe‘jobsandgrowth’strategyremainsinplace,Australiaislikelytocontinuetolimpdownthelowproductivitypathwayitispresentlyon.

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Aswehaveargued,itunlikelythattherewillbeanycompensatinghighproductivityimpetusshouldtheAustraliangovernmentpursueanotherboutofneoliberaleconomicreform.

Yes,suchreform(ofthelabourmarket,reducedredtapeandthelike)maygiveaboosttotheproductivityofindustriesservingthedomesticmarket.

Buttherearesignificantlimits.Australia’s‘jobsandgrowth’strategyisdeliveringamassiveexpansioninextrapopulation,allofwhomwillhavetobeprovidedwithservices.Thismeansanexpansionineducation,healthandsocialcareindustries,whicharegeneratingverylittlegainsinlabourproductivitybutcompriseagrowingshareoftotalemployment.

Theimplicationsaredire.Australia’sexternaleconomyisbuiltonanarrowcommoditybase.

Thankgoodnessforthesecommodityindustries.TheyarethemainstayofAustralia’seconomichealth.

Butourrelianceonthesecommoditiesmeansthatouroveralleconomyisatthemercyofworldcommoditypricesandourhollowedoutmanufacturingsectorremovesanybuffertoprovideemploymentwhencommoditypricescollapse.

Morethaneverweneedaforwardthinkingindustrypolicytohelptoincubateandnurturethenewindustriesofthefuture.Neo-liberaldogmaremovesanysupportfortheseemergingindustries.Insteaditpreachesthesupposedbenefitsoffreetradeagreements.Buttheseagreementsprohibitindustrysupportand,insodoing,cementourfutureroleasalowproductivitynationdependentalmostentirelyoncommoditytrade.

Ittheabsenceofanindustrypolicyitisfoolishtokeeploadingmoreandmorepeopleontoaneverlargerrelativelyunproductivedomesticeconomy,andaneconomywhichisdependentonanarrow,internationallycompetitive,commodity-basedfoundation.

31

Notes1DavidCrowe,Venom,HarperCollins,2019,p.562JoshFrydenberg,‘Makingourownluck–Australia’sproductivitychallenge’Treasury,26August20193Ibid.,p.34ProductivityCommission,PCProductivityBulletin,May2019,Table15ABS,5204.0,AustralianSystemofNationalAccounts,2018-19,25/1020196IGR2015,p.307ProductivityCommission,op.cit.,p.38ProductivityCouncil,2016,DiscussionPaper,IncreasingAustralia’sFutureProsperity,p.119Ibid.,p.1110ABS,TheLabourForce,August2019,6202.011September28,2019https://www.news.com.au/finance/economy/australian-economy/a-us-federal-reserve-bank-says-australia-has-had-three-recessions/news-story/7647ece386641f8397e0b84ad967d856

12AlanKohler,‘Whymonetarypolicydoesn’tworkanymore’,TheAustralian,July6,2019,pp.2-313AlanKohler,‘TheendofU.S.hegemony’,TheAustralian,October19,201914ABS,5204.0,AustralianSystemofNationalAccounts,2018-19,25/10201915BobBirrellandErnestHealy,ImmigrationandtheHousingAffordabilityCrisisinSydneyandMelbourne,TheAustralianPopulationResearchInstitute,July2018,p.vi

16PhillipLowe,AnEconomicUpdate,Sept24,2019,17AdamBoyton,‘Migrationandmonetarypolicy’,FinancialReview,Sept19,201918PlanningforAustralia’sFuturePopulation,AustralianGovernment,March2019,p.2819DavidCrowe,op.cit20Treasury,2018-19BudgetPaperno.3,AppendixA,p.92,p.421DHA,Temporaryentrantsvisholderspivottable,June201922BobBirrell,OverseasstudentsaredrivingAustralia’sNetOverseasMigrationtide,TheAustralianPopulationResearchInstituteResearchReport,April2019,Table1

23BobBirrell,Overseasstudents,opcit.,pp.7-824DHA,StudentandTemporarygraduatevisaprogramreport,30June201925DavidColeman,MediaRelease,26October201926BobBirrell,Overseasstudents,opcit.PeterMares,NotQuiteAustralian,TextPublishing,201727BobBirrell,Australia’sSkilledMigrationProgram:ScarceSkillsNotRequired,TAPRI,March2018,p.1328ABS,5204.0op.cit.,p.229https://parlinfo.aph.gov.au/parlInfo/download/committees/commrep/eea5d0b8-72e9-4b5e-acf8-52ed46888ced/toc_pdf/Standing%20Committee%20on%20Economics_2019_08_09_7100_Official.pdf;fileType=application%2Fpdf#search=%22committees/commrep/eea5d0b8-72e9-4b5e-acf8-52ed46888ced/0000%22

30Ibid.,p.331Ibid.,p.232Ibid.,p.933BureauofLaborStatistics,Sept52019,Table1,Businesssector:Laborproductivity,hourlycompensation,unitlabourcosts,andprices,seasonallyadjusted

34DavidBlanchflower,NotWorking,Princeton,2019providesthebackground.SeeChapter3,especiallyFigure3.1

35StevenKennedyopeningstatement–October2019,SenateEstimateshttps://www.treasury.gov.au/speech/opening-statement-october-2019-senate-estimates

36Ibid.,p.337Ibid.,p.538AlanKohler,TheWeekendAustralian,BusinessReview,November9-10,2019,p.3839StephenBell&MichaelKeating,FairShare,CompetingClaimsandAustralia’sEconomicFuture,MelbourneUniversityPress,2018

40CSIRO,AustralianNationalOutlook2019,2019,p.3041KenHenry,‘Aoldeconomyisnewagain’,TheWeekendAustralian,Inquirer,Sept31-Oct1200642Auscript,recordofinterviewbetweenDavidUrenandJamesGlynnwithGlennStevens,15August2016,p.543ScanLangcake,ConditionsintheManufacturingSector,ReserveBank.Bulletin,JuneQuarter2016,p.744PhilipLowe,TheChangingNatureofInvestment,(AddresstotheAustralianFinancialReviewBusinessSummit)ReserveBankofAustralia,7March,2018

32

45BellandKeating,op.cit.,p.10946AustralianGovernment,DepartmentofForeignAffairsandTrade,CompositionofTradeAustralia,2018andearlieryears

47TheEconomist,2015,‘Cyber-boomorcyber-bubble?’1Aug201548Ibid.49DanBreznitz,2007,Innovationandthestate,Yale,Chapter250LaunchoftheNationalInnovationandScienceAgenda,19September2015,p.251Ibid.,p.352ClearState,op.cit.,p.1153Sarah-JaneTasker,’Drugdevelopmentfailing,saysPfizer’,TheAustralianSept27,201954BobBirrellandKatharineBetts,‘Australia’shighereducationoverseasstudentindustry:inaprecariousstate’,TheAustralianPopulationResearchInstitute,ResearchReport,November2018,pp.11-12

55ACOLA,SecuringAustralia’sFuture,Theroleofscience,researchandtechnologyinliftingAustralianproductivity,FinalReport,2014,p.16

56AustralianAcademyofTechnologicalSciencesandEngineering,TechnologyinAustralia,1788-1988,p.66157BellandKeating,opcit.,p.10858Forexample,seeAndrewLiveris,MakeitinAmerica,Wiley,UpdatedEdition,2012,p.3859ProductivityCommission,opcit.,p.1160Ibid.,p.161MeghanQuinn,quotedinJohnKehoe,‘WhyAustralisfallingbehindonproductivity’,AustralianFinancialReview,June20,2019https://www.afr.com/technology/wages-hurt-by-low-tech-adoption-and-less-job-switching-20190619-p51zbc

62JoshFreudenberg,op.cit.,p.763BellandKeating,op.cit.,p.270